On July 28, the Social Security Administration released The 2014 Annual Report of the Board of Trustees, which details the financial status of the Social Security program. The report makes clear that:
- Social Security is vital to millions of Americans. At the end of 2013, Social Security provided benefits to about 58 million people: 41 million retired workers and their dependents, 6 million survivors of deceased workers, and 11 million disabled workers and their dependents.
- Social Security’s Trust Funds still have plenty of reserves. At the end of 2013, the combined Social Security Trust Funds held almost $2.8 trillion in assets, and they continue to grow. Today the program is able to pay full benefits by using some of the interest earned on assets held in the Trust Funds, and it can continue to do this until 2020. After that, the Social Security program will have to redeem the assets to pay full benefits until 2033 when the Trust Funds’ assets are depleted.
- Few numbers changed from last year. The trustees project assets in Social Security’s combined (OASDI) Trust Funds to be depleted in 2033 – the same as the last two years. Separately, they project assets in the Disability Insurance (DI) Trust Fund to become depleted in 2016 (also unchanged from the last two years) and assets in the Old Age and Survivors Insurance (OASI) Trust Fund to become depleted in 2034 (one year earlier than predicted last year).
- Even after the Trust Funds’ assets are depleted, benefits will still be paid. Social Security is not going bankrupt. Even after the Trust Funds become exhausted, Social Security will continue to receive revenue, primarily from payroll taxes. When the DI Trust Fund becomes exhausted in 2016, Social Security will still be able to pay 81 percent of promised DI benefits. Similarly, when the combined OASDI Trust Fund becomes exhausted in 2033, Social Security will still be able to pay 77 percent of promised benefits.
- The program’s long-term shortfall increased slightly from last year. The “actuarial deficit” is the amount of money necessary to keep the Social Security program funded through the next 75 years (2014-2088). The actuarial deficit slightly increased from 2.72 percent to 2.88 percent of taxable payroll. To pay full benefits through 2088 and maintain a one-year reserve, the total Social Security payroll tax would need to be increased by an additional 2.88 percentage points. The primary reason for the slight uptick in the actuarial deficit is the additional year (2088) added to the 75-year evaluation period.
- For the first time, benefits for same-sex couples were included in the trustees’ calculations. Social Security allows individuals in same-sex marriages to receive benefits if they live in a state that recognizes same-sex marriage. In this year’s report, the trustees assume that legislation will eventually be passed so that individuals in same-sex marriages will be eligible for the same benefits as heterosexual couples in all states. This would increase the long-term shortfall by 0.01 percent of taxable payroll over the 75-year evaluation period.
- There are many ways to keep the program solvent for the next 75 years. The trustees’ report shows that the program could remain solvent throughout the 75-year period if the payroll tax were immediately and permanently increased by 2.83 percentage points or if benefits were immediately and permanently decreased by 17.4 percent. The 2.83 percentage point increase is called the necessary tax rate and is different from the 2.88 percentage point actuarial deficit, in part, because it assumes there is no money left in the Trust Funds at the end of the 75-year period (the actuarial deficit assumes there is enough money to pay benefits for one additional year).
- The longer we wait, the bigger the changes will have to be. Delays in changes to Social Security will force larger tax increases or benefit cuts. If nothing is done prior to 2033, the Social Security payroll tax will have to increase by 4.2 percentage points or benefits will have to decrease by 23 percent.
Mikki D. Waid is a senior strategic policy adviser on the Economic Security Team in the AARP Public Policy Institute. She is responsible for research and analyses of policy issues relating to Social Security and retirement security.
Also of Interest
- Lawmakers Urged to Act Soon to Shore Up Social Security
- Retire at 62… 65… 70? Social Security Calculator Shows You the Money
- Fight fraud and ID theft with the AARP Fraud Watch Network.
- Join AARP: Savings, resources and news for your well-being
See the AARP home page for deals, savings tips, trivia and more