Is SSA Financially Secure?

March 18, 2020

From the New York Times reader questions:

Is Social Security financially secure? Should people in their 60s who can afford to wait to claim benefits wait until they can get the highest monthly benefit, or should they consider signing up now because the program may not be there in 20 years?

In the years ahead, Social Security does face a financial shortfallthat requires action by Congress. The combined trust funds for Social Security’s retirement and disability programs are on course to be depleted in 2035; without changes, funding from payroll tax receipts will be sufficient to pay only 80 percent of currently scheduled benefits.

That would mean immediate, across-the-board benefit cuts, but the pain would be felt most acutely by today’s younger workers and low-income retirees.

“If policymakers don’t address Social Security’s finance gap by 2035, all Gen Xers and millennials would experience the cuts throughout retirement,” notes Richard W. Johnson, director of the program on retirement policy at the Urban Institute. “An additional one-third of retirees could end up in poverty.”

The shortfall stems primarily from the retirement of baby boomers combined with the slow growth of the labor force, which reduces the ratio of workers paying into the system and beneficiaries. Rising life expectancy also plays a role; so does rising inequality in worker earnings.

When Congress last adjusted the cap on wages subject to the payroll tax in 1977, the intent of lawmakers was to cover 90 percent of all wages. But wages above the cap have grown more quickly than the average wage, so the cap (set this year at $132,900) now covers only 83 percent of wages, reducing taxes flowing into the system.

The projected shortfall is an understandable source of worry, considering the importance of Social Security to most households. But it has no practical, short-term impact on benefits, says Paul Van de Water, senior fellow at the Center on Budget and Policy Priorities. And he thinks the odds of reaching the 2035 doomsday scenario are slim.

“Given the strong public support for the program, it is inconceivable that Congress won’t step in sometime before 2035 and put things on an even keel,” he says. “It’s a source of concern, but not something to lose sleep over.”

Congress could put Social Security back into financial balance with new tax revenues, benefit cuts or a combination of both. The Democratic-controlled House is advancing a plan that would putSocial Security back into balance over the next 75 years by increasing payroll tax rates by 0.1 percentage point annually through 2043, reaching 14.8 percent for that year and later. The bill also would apply payroll taxes to earnings over $400,000, starting in 2020. The bill would expand benefits modestly.

The legislation, sponsored by Representative John B. Larson, Democrat of Connecticut and chairman of the Ways and Means Social Security Subcommittee, has 211 co-sponsors in the House.

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