There are those “Chicken Littles” out there who say the sky is falling down on Social Security—that it is on a path to insolvency. The most recent Social Security Trustee’s annual report shows that this fear is misplaced. The program’s financial health actually improved in 2018. The Social Security’s board of trustees is required to report every year on the long-term financial health of the system.
Last year, the trustees predicted that the Social Security Trust Fund reserves would be used up by the year 2034—16 years away. This year’s estimates pegged that date as 2035—still 16 years away. The near-term health of Social Security also looks rosier. In the 2017 report the trustees warned that by 2018 the program would be paying out more in benefits than it took in. The program was projected to be more than $1 billion in the red. The current report says those predictions were dead wrong. In actuality, Social Security was $3 billion in the black in 2018 and won’t have to draw on its reserves until 2020.
“This year’s trustees report shows that, contrary to conservative propaganda, Social Security is not ‘going bankrupt’ or ‘in peril,’’” Max Richtman, head of the National Committee to Preserve Social Security and Medicare, told the Los Angeles Times after the report’s release. For more insight into the truth about Social Security read Tom Nash’s article, Ignore the Scare Tactics about Social Security.
The health of the Social Security Trust Fund is important because Social Security benefits are not paid for with tax revenues. Instead they are paid from a separate account funded by those FICA deductions that have been coming out of your paycheck for all your working years. In fact, Social Security has two funds—one to pay old-age retirement benefits and the other to pay disability benefits. Currently, employers and their workers each pay a total of 6.2 % of their wages to the Social Security system. 0.9 % is allocated to Disability Insurance (DI) and 5.3 % to Old-Age and Survivors Insurance (OASI). These insurance payments are held in trust by the federal government. For most Americans, this is a crucially important safety net because only about one in three employers provide disability insurance as an employee benefit, and privately purchased disability insurance is just too expensive for many families.
Social Security’s financial status has improved mainly because disability claims and payouts have fallen significantly. Disability applications have been declining since 2010 and disability benefit payouts reached their high water mark in 2014 and have been ticking down every year since then. As a result, last year the trustees predicted that the disability insurance trust fund would be exhausted by 2032. In this year’s report that date has been moved back by 20 years to 2052!
The cost of keeping the Social Security system solvent into the future has also gone down. Social Security analysts say a modest increase of 1.35% in the FICA contribution by both employees and employers would secure the long term health of Social Security, the number one most popular government program. Another option is to increase Social Security taxes on very high earners. Under the current system, payroll taxes are not collected on wages over $132,900. Knowledgeable estimates say that if the wage cap were lifted, this would make up more than 80% of the funds needed to maintain current Social Security benefits. A very modest increase in the contribution rate could make up the difference.
It is important to bear in mind that even if our politicians lack the political will to shore up Social Security, incoming FICA tax collections will be enough to pay for 75% of scheduled benefits. If Congress does nothing, it does not mean that no benefits will be paid out; it means that the benefit amount will be reduced by 25%.