On Friday, May 31, The Social Security Administration released The 2013 Annual Report of the Board of Trustees which details the financial status of the Social Security program. The following are key facts from the report.
- Social Security is vital to millions of Americans. At the end of 2012, Social Security provided benefits to about 57 million people: 40 million retired workers and their dependents, 6 million survivors of deceased workers, and 11 million disabled workers and their dependents.
- The Trust Fund reserve depletion dates remained the same. Social Security's combined (OASDI) Trust Fund reserves will be depleted in 2033 - the same as last year. Separately, the Disability Insurance (DI) Trust fund reserves are projected to be depleted in 2016, and the Old Age and Survivors Insurance (OASI) Trust Fund reserves are projected to be depleted in 2035.
- Even after the Trust Funds reserves become depleted, benefits will still be paid. Social Security is not going "bankrupt". Even after the Trust Funds reserves are depleted, Social Security will continue to receive revenue, primarily from payroll taxes. When the DI Trust Fund reserves are depleted in 2016, Social Security will still be able to pay 80 percent of promised DI benefits. Similarly, when the combined OASDI Trust Fund reserves are depleted in 2033, Social Security will still be able to pay 77 percent of promised benefits.
- The program's shortfall increased a little from last year. The amount of money necessary to keep the social security program funded through the 75-year period (2013-2086) is called the 'actuarial deficit'. The actuarial deficit slightly increased from 2.67 percent to 2.72 percent of taxable payroll (thus, the total social security payroll tax would need to be increased by an additional 2.72 percent to maintain solvency through the 75-year period in addition to having one year's worth of cost in reserve). The primary reason for the slight uptick in the actuarial deficit is the additional year (2086) added to the 75-year evaluation period.
- Social Security's Trust Funds still have plenty of reserves. At the end of 2012, the Social Security Trust Funds held over $2.7 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 the assets held in the Trust Funds. It can continue to do this until 2021. After that, the Social Security program will have to redeem the assets themselves to pay full benefits until 2033 when all of the Trust Fund assets are depleted.
- There are many ways to keep the program solvent for the next 75 years. The Trustees list three. The Social Security Trustees state that the program can remain solvent throughout the 75-year period if the payroll tax were immediately and permanently increase by 2.66 percentage points or benefits were immediately and permanently decreased by 16.5 percent (or a combination).
- If nothing is done prior to 2033, some people would face an even larger increase in the tax rate or a larger decrease in benefits. In other words, if nothing is done prior to 2033, the social security payroll tax would have to increase by 4.1 percentage points or benefits reduced by 23 percent (or a combination) to keep the program solvent for the next 75 years.
The challenges faced by the social security program are not insurmountable. The Social Security Trustees state that "[w]ith informed discussion, creative thinking, and timely legislative action, Social Security can continue to protect future generations."
[Note: This blog was updated June 10, 2013]
[Photo above courtesy of Mikki D. Waid]
Mikki D. Waid, Ph.D. is a Senior Strategic Policy Advisor 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.