Social Security Has Less Than 8 Years Left

I’ve lost track of how many blog posts I’ve written about Social Security going broke. Over the years there have been quite a few and always the news is grim. But the latest news, which came out in the form of a trustees report published this summer says that by 2033 the old age portion of Social Security will be unable to pay full… benefits to the millions of people who receive it. The Post had a story about it back in June:

…in last year’s annual report, the trustees projected that Social Security would become insolvent by 2035 and Medicare in 2036. They now predict that Social Security’s fund will run out of money in 2033, or in 2034 if Congress changes the law to combine the separate funds for old-age benefits and for disability insurance…

For years, the programs have been spending more money than they take in, as an aging workforce means more retirees are receiving benefits and fewer workers are paying taxes into the system.

If the trust funds dry up, retirees will still receive benefits as long as workers are paying the payroll taxes. But the amount will drop…

In addition, the trustees predicted slower earnings growth for workers over the next decade than they had previously forecast.

They also reassessed their predictions about the U.S. birth rate. While Wednesday’s report still predicts the U.S. fertility rate eventually will reach 1.9 children per woman, up from 1.6 currently, the trustees now see that change fully occurring by 2050, instead of their previous prediction of 2040 — which means a longer period of fewer workers paying into the program.

Social Security is in theory a trust fund. People pay into it through a payroll tax and, if you ask them, most Americans have the impression that the money goes into a big bank account to hold onto it for them until they are ready to retire. 

In reality, all of the money goes into the general fund and trust fund has no separate pot of money available to it. This means the system is really a pay-as-you-go arrangement. The money going to retirees right now is money being paid in by current wokers plus a bit more taken from the treasury because current workers no longer cover the amount of the payments. Payments began exceeding receipts in 2021.

For some reason, Axios decided to turn this old news into a news story last week.

There is a tug-of-war between the benefits future retirees receive and the taxes that working-age people pay. Something has to give, and surprisingly soon.

The big picture: The Social Security retirement fund is set to be depleted in 2033, at which point recipients would see a steep cut to their monthly checks absent congressional action.

Nobody in U.S. politics wants that to happen, but there are deep divides over how to address the imbalance — or, perhaps more accurately, elected officials would prefer not to talk about the hard trade-offs ahead.

This is all true but it has been true for years. Even the news about going broke in 2033 is six months old at this point.

In any case, there are only two options moving forward. One is to raise taxes substantially, which won’t matter much since we’re currently running a deficit of $1.5 trillion a year. Raising payroll taxes enough to cover the projected shortfall of the Social Security Trust Fund (about $350 billion in 2033) won’t do anything about the rest of the trillions we spend despite not having the money.

The other option is to cut benefits. But you can bet the Democrats will raise hell the moment anyone suggests that. They’ve been doing it for the past 30 years.

So we’re stuck and it’s hard to imagine how we can move forward. But the deadline keeps getting closer. It’s almost 2025 at which point the program going broke is only 7 years away, at best. At some point, some adults in the room are going to have to fix this problem or a lot of Americans aren’t going to get the retirement money they were promised.

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