Boston College Center for Retirement Research

In early June, the Social Security Administration issued the 2018 Trustees Report that shows virtually no change in the program’s long-term deficit. This report shows the long-term actuarial deficit as 2.84 percent of payroll, compared to 2.83 percent in the 2017 report. This means that some combination of benefit adjustments and tax increases with a total value of 2.84 percent of worker’s aggregate compensation could put the program into long-term actuarial balance. This seems like a doable goal if our political leaders can find the will and acceptable compromises to address the system’s funding challenges.

The 2018 report also shows the Social Security trust fund being exhausted in 2034, which is the same year as the 2017 report. The key difference is that we are now one year closer to this deadline with no solutions in sight. The latest report prompted the usual media headlines about Social Security going bankrupt, which is misguided thinking.

In reality, the Social Security trust fund is a supplemental source of funding, and pays for about one-fourth of retirees’ benefits. Most (about three-fourths) of current retirees’ benefits are paid by the FICA taxes that current workers pay to support the system. Under current law, if the trust fund becomes exhausted, in aggregate benefits would need to be reduced to about three-fourths of their current levels. While this would be a very disturbing result, retirees wouldn’t see their benefits go to zero. As long as current workers are paying taxes into the system, current retirees will be able to receive at least a large portion of their expected benefits.

For a very good summary of the issues, see this brief prepared by the Boston College Center for Retirement Research. It discusses one important issue for the long-term security of the system: the decline in fertility in the US population. Babies born today will become workers who will support current and future retirees. Was the recent decline in fertility a lingering effect of the Great Recession, or a permanent shift that could worsen Social Security’s finances?

It behooves all of us to become informed citizens and voters on Social Security’s financing challenges.

This article was recommended by Steve Vernon, Research Scholar in the Financial Security Division at the Stanford Center on Longevity.