There has been a new social security trustees report published recently that indicates there is a slightly longer time horizon for different program trusts funds. A new depletion date of 2035 has been put forward (a year later than that suggested), but even with this revised date, the whole program is still facing a 75-year deficit.
This bump might seem like a small change, but it could be a much bigger deal than at first glance. Alicia Munnell, who works at Boston College as the director of the Centre for Retirement Research, has compared the bump to an ocean liner and believes congress is running out of time to turn it around.
If action is not taken, then by the year 2035, the trust funds will be insolvent, and only around 80% of the benefits will be payable. Alicia Munnell commented on this, saying, “we’re getting into that area where immediate action will be required.”
What Are Social Security Trust Funds?
It’s worth first discussing what social security trust funds are. They are financial accounts within the US Treasury, and two separate funds are available. These are the Old-Age and Survivors Insurance Trust Fund (OASI), which is a trust fund which pays benefits to people in retirement and survivors. You also have Disability Insurance Trust Funds (DI), which are there to pay benefits to the disabled.
When people receive taxes on social security or other forms of income, then they are deposited into these accounts, and the benefits will be paid from those tax pots. These trust funds can only be used to pay different benefits programs and the administrative costs that come with running them.
These funds are used to hold money which is currently not needed in the year and are then invested into a special Treasury bond that the US government guarantees. A market interest rate will then be paid into the trust fund bonds as they are on hold, and then this can be used in order to pay the different benefits needed in OASI and DI.
Is Social Security Bankrupt?
Bankruptcy and insolvency is common within today’s economy following the economic uncertainty that seems to have plagued society in the past couple of years. The same applies to social security, which, as discussed above, is currently facing a shortfall that needs to be addressed. This shortfall can be explained by the shift in demographics that has led to a gap between cost rates and the country’s income.
There has been a significant decrease in the number of children that women have. In 1964 the average was 3.2, but that has since fallen to 1.8. As such, the number of people who are retired and need social security trust funds is imbalanced compared to the number of people working. By the year 2030, all baby boomers will be 65, and a large proportion of them will be looking to retire.
The imbalance is also contributed to by medical advancements, which make it so that people are now living a lot longer. Again, this means that there are a lot more retired people than there are people currently working. The trust funds can help for now in order to mitigate the deficit, but this can’t carry on in the long term.
Increase in Cost Rate in 2010
The social security program also saw increased cost rates in 2010, and this cost started to exceed the income rate. At this point, the program began tapping the interest on trust funds to pay the amount of outstanding benefits that were out there.
Trust payments were drawn down in 2021 to make benefit payments; this was initiated thanks to shortfalls in interest and taxes. These drawdowns are likely to continue until the estimated depletion date, which is set to be 2035. At this point, there is speculation that the trust funds will become insolvent, but this still remains to be seen. As it stands, the program is going strong.
Why There is No Bankruptcy
There isn’t any sign of bankruptcy as of yet, as payroll tax revenues are going to be able to continue to cover a large proportion of benefits even once the depletion rates kick in. There have also been a number of different proposals put forward by congress which should be able to help eliminate the 75-year shortfall.
One of these includes that which was put forward by Senator Bernie Sanders and Elizabeth Warren. With such proposals getting made, it is fair to assume that even once the depletion takes effect, social security trust funds will still be able to continue paying different benefits to those that need it.
Do You Need More Information About Your Finances?
As stated above, the past couple of years has brought with it a great deal of financial uncertainty. One of the ways in which this can be seen is in the questioning of social security trust funds. These are used in order to pay disabled people, retired people and survivors benefits; however, thanks to a disparity in the number of people claiming and the number of people working, alongside cost prices increasing, there is concern over whether or not these funds are going to become bankrupt. As it stands, they are not, but it is still worth staying up to date with everything that’s happening in economics in both the US and the UK.
If you want more information or want to know how the current climate could affect your finances, then you should get in touch with experts such as Simple Liquidation. They will be able to consider your finances and then provide you with advice on the kind of position you are in moving forward. If you require any further information or have any questions, then do not hesitate to get in touch.