CHICAGO (Reuters) - It’s rare to see a federal official publicly beg reporters to get a story right, but the commissioner of the Social Security Administration seemed ready to get down on his hands and knees at a Monday press briefing. Michael Astrue was cautioning journalists not to scare the public about the meaning of the word “exhaustion.”
“Please, please remember that exhaustion is an actuarial term of art and it does not mean there will be no money left to pay any benefits” he warned in issuing the trustees’ annual report on the financial health of the Social Security program.
“After 2033, even if Congress does nothing, there will still be sufficient assets (from payroll taxes) to pay about 75 percent of benefits. That’s not acceptable, but it’s still a fact that there will still be substantial assets there,” Astrue insisted.
This year’s report shows some acceleration of the drawdown of Social Security’s vast trust fund reserves. Absent Congressional action, the trust funds of the retirement and disability programs are expected to be exhausted in 2033 as baby-boomer retirements accelerate - three years sooner than projected a year ago.
But Astrue went out of his way to emphasize that the program is far from broke. Social Security took in $69 billion more than it spent last year, according to the report, when you include tax receipts and interest on bonds held in the Social Security Trust Fund (SSTF). The SSTF had reserves of $2.7 trillion last year.
Yet the press plowed right ahead with stories warning that the Social Security retirement program is running out of money. “There won’t be much money left for you” after 2033, warned a public radio reporter - a line that pretty well summed up the coverage and nearly forced me to run my car into a ditch.
Americans need to get this right, because Social Security is the primary source of retirement security for most Americans - and it will be even more important in the future as we continue to dig our way out of the rubble of the Great Recession.
So, what’s really going on with Social Security?
1. Social Security isn’t running out of money.
The long-range actuarial shortfall is projected to be 2.67 percent of taxable payroll - in other words, 2.67 percent of all the earnings subject to Social Security contributions. That’s a modest shortfall - and it fluctuates over time due to economic cycles and changes in assumptions about growth in taxable earnings. For example, the projected year of SSTF exhaustion was as far off as 2042 in 2003 in the wake of the dot-com bubble; it was as close as 2029 in 1994 due to changed expectations about real wage gains.
2. Yes Virginia, there is a Trust Fund.
Social Security’s critics love to argue that the SSTF is a myth, but it’s not. Although Social Security was designed as a pay-as-you-go program, every penny it receives is credited to the SSTF, which has been building enormous reserves following benefit cuts enacted in 1983.
The Trustee report confirms - again - that the surplus funds are invested in “special issue Treasury bonds” and that they are “full faith and credit” obligations of the government to Social Security. Since Social Security can’t borrow money by law, it uses those reserves to pay benefits whenever cash on hand runs short.
3. This year’s news is not about our aging population.
The accelerated SSTF exhaustion date stems from two factors: a 1.6 percent drop in taxable earnings due to the ongoing depressed economy, and a 3.6 percent cost-of-living adjustment awarded for this year.
Our aging demographics do play a role in the longer range imbalance after 2033, because we have not raised revenue sufficient to match the projected growth in our retired population.
“The choice is to either reduce benefits 25 percent, or raise revenues 33 percent to adapt,” says Steve Goss, chief actuary of the Social Security Administration. Making reforms sooner rather than later would allow for a more gradual phase-in, giving the public plenty of time to plan and adjust accordingly.
I’m in favor of a modest, graduated payroll tax increase. Social Security benefits are modest, averaging $1,230 per month this year. It’s the main source of income for most people over age 65 - more than half for nearly one in two married couples and two in three unmarried individuals, according to the National Academy of Social Insurance.
A gradual increase in payroll taxes over the next decade would eliminate a sizable portion of the imbalance; another approach is to lift or remove entirely the cap on wages subject to payroll taxes, which currently is set at $110,100.
Perhaps that won’t be too exhausting an idea for Congress and the media to embrace.
(The writer is a Reuters columnist. The opinions expressed are his own.)
Editing by Beth Pinsker Gladstone