According to the Social Security Board of Trustees’ annual report, the assets in the Social Security’s trust fund are predicted to run out by 2033, which is three years earlier than the estimate in 2011. Once these funds are exhausted, only ¾ of benefits will be able to be paid out unless changes are made to the system.
The thing that scares us the most is that the Board of Trustees’ seem to adjust the solvency date for Social Security every year, and every year it’s an earlier date. This leads us to believe even the Board of Trustees’ don’t really know when the trust fund will run out.
Social Security’s annual financial checkup produced the following 6 facts:
- Benefits paid in 2011. The old-age and survivors insurance and disability insurance (OASDI) trust fund paid out $736 billion to about 55 million people in 2011. These payments were made to 38 million retired workers and their families, 11 million disabled workers, and 6 million survivors of deceased workers. The cost to administer the program in 2011 was $6.4 billion, which was about 0.9% of total expenditures.
- Employee contributions: An estimated 158 million people contributed $564 billion into the trust fund by way of payroll taxes, and another $24 billion from the taxation of benefits. In the past, employers and employees would contribute 6.2% of their income to Social Security, up to the minimum taxable amount ($106,800 in 2011 and $110, 100 in 2012). However, for 2011 and 2012, that amount was temporarily reduced to 4.2%.
- Payroll tax cut: The temporary payroll tax cut for Social Security in 2011 resulted in about $103 billion being paid from the Treasury’s general fund into the Social Security’s trust funds. However, this tax holiday has had no major impact on the program’s solvency according to Nancy LeaMond, executive vice president of AARP, and she says that the Treasury has repaid all borrowed funds.
- Interest earned: The Social Security’s trust funds earned $114 billion in interest last year, which is an effective annual rate of about 4.4%. In addition, assets kept in special issue U.S. Treasury securities reached $2.7 trillion in 2011 and are expected to grow to about $3.1 trillion by 2021.
- Long-term funding shortage: Michael Astrue, Commissioner of Social Security, says that to avoid cutting back on benefits by 2033, Congress will need to find a way to ensure the long-term solvency of this program within the next four years. For now, the trustees project that the fund’s assets will hold steady over the next two decades that take us out to 2033, but that there is a long-term funding shortage.
- Changes are needed: Trustees have suggested several changes that could restore the Social Security program’s solvency for the next 75 years, which include: an immediate payroll tax increase of roughly 1.3% for employers and employees, reducing benefits by 16.2%, or a combination of the two. If changes to Social Security are deferred until the funds are exhausted in 2033, the only way to bring benefits back to their current levels would be to require a tax increase of 2.15%, or the benefit payouts will need to be reduced by 25%.
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