Retirement & Financial Planning Report

There is still time to avoid insolvency of the Social Security trust fund but doing it sooner is better than latter, a Congressional Research Service report says.

It said that under current projections, the fund will be depleted in 15 years, and “at that point, the combined trust funds would become insolvent.”

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“Insolvency does not mean that Social Security will be completely broke and unable to pay any benefits,” it added, because the funds would continue to receive payroll taxes from both employers and employees. However, that incoming revenue would be sufficient to pay only about 79 percent of currently scheduled benefits at the outset, and only about 73 percent long-run.

It is unclear what would happen then, it said. “One option would be to pay full benefits on a delayed schedule; another would be to make timely but reduced payments. Social Security beneficiaries would remain legally entitled to full, timely benefits and could take legal action to claim the balance of their benefits,” it said.

As have many similar prior assessments, the report said that to stave off insolvency, income to the fund could be increased and/or the rate of outlay decreased from current law. On the income end, it mentioned often-raised possibilities including increasing payroll taxes, which could be done by a general increase in the rate and/or making more of pay for higher income earners taxable.

On the outgo end, it expressed potential changes in terms of reducing the percentage of pre-retirement income that benefits replace, which could be done for example by changing the payout formula for future retirees. Other outlay-related proposals often mentioned include raising the eligibility age for future benefits and restricting inflation adjustments.

Said CRS, “The sooner adjustment to Social Security policy is undertaken, the less abrupt the changes would need to be, because they could be spread over a longer period and would therefore affect a larger number of workers and beneficiaries. As well, enacting adjustment to Social Security policy sooner, rather than later, would give workers and beneficiaries more time to plan and adjust their work and savings behavior.”

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