Retirement & Financial Planning Report

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The Social Security system likely will turn an important financial corner this year, says a Congressional Research Service report calling new attention of Congress to the program’s long-term finances.

It says that since 2010, Social Security has been paying out more than it takes in from payroll taxes on employees and employers. However, the interest being credited to the program by the Treasury on the $2.9 trillion trust fund built up over eight decades has meant that the trust fund itself has not been drawn down to pay benefits.


Said CRS, “In 2020, Social Security’s cost is projected to exceed total income (i.e., tax revenues plus interest income). Trust fund reserves are projected to decline steadily from their peak of $2.9 trillion to zero in 2035. Following the depletion of trust fund reserves, scheduled tax revenues are projected to be sufficient to pay 80% of scheduled benefits.”

The program’s financial picture has been clear for many years and other reports have made similar projections. However, reaching the point where the trust fund itself is being drawn down is a significant event, and one coming just 15 years in advance of its depletion.

Said CRS, “Such a scenario has not occurred in the past, raising questions about how the Treasury would handle scheduled benefit payments. Social Security does not have authority to borrow from the general fund of the U.S. Treasury to make up for any funding shortfalls; such borrowing would require legislative action. Yet, the United States is legally obligated to make Social Security payments to any person who meets the eligibility requirements established in Title II of the Social Security Act, and the act states that benefits shall be paid only from the Social Security trust funds.

“At the same time, the Antideficiency Act prevents an agency from paying more in benefits than the amount in the source of funds available to pay the benefits. It appears that beneficiaries would have to wait until the Social Security trust funds receive a sufficient amount of tax revenues to pay full benefits, unless Congress amends applicable laws.”

It added that numerous proposals have been raised to shore up Social Security’s finances, typically involving a combination of increases in revenue—such as increasing the amount of covered earnings subject to the payroll tax and/or increasing the payroll tax rate—and reductions in outlays—such as raising the full benefits age and/or modifying benefits or inflation adjustment formulas.

As an illustration, it said that to keep Social Security solvent over a long-term time frame would require an immediate 2.7 percentage point increase in the payroll tax rate (split evenly between employers and employees); an immediate 17% reduction in scheduled benefits for all current and future beneficiaries; or a 20% reduction for newly-eligible beneficiaries only.

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