Essentials of The 2019 Social Security Trustees Report
This fourth week of April 2019 is being dominated by release of the annual Trustees Report on Social Security. Little has changed to improve the long-term financial problems facing this program due to changing demographics, but there are a few takeaways that can be highlighted from this important yearly report.
- Social Security (pension and disability part combined) is getting a one year reprieve to 2035, though the retirement and survivor benefits portion of the trust fund remains the same as last year; with declining applications for disability benefits, the report now expects the disability trust fund to last until 2052, or 20 years longer than the previous report.
- Retirees will see a smaller benefit cut after 2035 than previously anticipated. Social Security benefits will not stop after 2034 due to continuing revenue from Social Security payroll taxes and other sources. Thus, the program will still pay the majority of promised benefits even with no other changes; the program will cover just 77% of retirement and survivor benefits after the trust fund covering those benefits is depleted, unchanged from last year’s levels. For disability, the program will pay 91% of scheduled benefits following that trust fund’s depletion, down from 96% a year ago. On a combined basis, though, Social Security will be able to pay 80% of expected benefits — up a percentage point from 2018’s numbers and suggesting that recipients will suffer a 20% hit to their Social Security checks once the trust funds no longer have any remaining assets.
- Solutions exist to Social Security’s problems, but none are without some pain. The trustees offer solutions to the program’s long-term financial shortfall, including benefit cuts, raising taxes, or a combination of the two; the employee portion of the payroll tax would have to go from 6.2% to 7.55% to achieve solvency, a smaller amount than last year’s 7.59% figure, with similar increases applying to the employer portion of the Social Security tax. Alternatively, benefit cuts would need to be severe to cover the shortfall. Implementing an immediate 17% reduction in all payouts both present and future would be sufficient, as would a 20% cut that applied only for those not yet receiving benefits.
- Waiting only makes things harder to fix by making the costs of fixing the problem higher. The trustees estimate that if lawmakers wait until 2035 to take action, it’ll require a 1.825-percentage-point increase in employee payroll taxes to 8.025%, with the employer share rising by the same amount. Alternatively, a 23% reduction to all benefits beginning in 2035 would solve the problem from that point forward.
- Good luck cannot save Social Security without help. Some hope that projections may prove overly pessimistic. However, the trustees use statistical analysis to get a sense of how sensitive their projections are to unexpected changing conditions. Even if things turn out better than anticipated, it still won’t necessarily give Americans much more time with full Social Security benefits. Specifically, the report says that there’s 95% confidence that the trust funds will be depleted between 2031 and 2044. That’s a year later than 2018’s prediction, but the width of the confidence interval remains fairly narrow.
Read the full synopsis as written by Dan Caplinger of The Motley Fool here. Read the entire 270 page Trustees Report here.
The Association of Mature American Citizens (AMAC) believes Social Security must be preserved and modernized. This can be achieved by making modest changes in cost of living adjustments and the retirement age, with no additional taxes on workers. AMAC advocates for a bipartisan compromise, “The Social Security Guarantee Act,” taking selected portions of bills introduced by former Rep. Johnson (R-TX) and Rep. Larson (D-CT) and merging them with the Association’s own well researched ideas. One component is Social Security PLUS, a new yet voluntary early retirement plan that would allow all earners to have more income available at retirement. This component is intended to appeal especially to younger workers. AMAC is resolute in its mission that Social Security be preserved and modernized and has gotten the attention of lawmakers in DC, meeting with a great many congressional offices and their legislative staffs over the past several years. Read AMAC’s plan here.