2034 is D-Day for Social Security
Social Security is the oldest and most popular federal income-support program, and after more than 80 years, it might seem as permanent as the pyramids. But the pharaohs did better longrange engineering than the architects of the New Deal did. A 2015 Gallup Poll found that 64 percent of millennials don’t think the program will be able to pay benefits when they retire.
The fearful ones have good reason to be concerned. Right now, the program provides retirement and survivors’ benefits to some 50 million people. Every year since 2010, Social Security revenues, excluding interest earned, have been lower than payouts, and things promise to get worse. Last week, the system’s board of trustees reported that it is still on track to insolvency.
In the past year, the program’s unfunded liabilities have grown from $11.4 trillion to $12.5 trillion. Given current trends, the Social Security retirement fund is expected to run out of money in 2034, a mere 17 years from now. The good news is, that’s the same year it was expected to run out in last year’s report. We’re moving, but the cliff we’re headed for is not.
Complacency is not in order. Someone who is 50 years old would reach normal retirement age (67 for those born after 1959) the year the fund is scheduled to run dry. People in the workforce and their employers would continue to contribute to the fund via payroll taxes. But barring action between now and then to reduce costs or increase revenue, retirees would face a reduction of “about $5,800 per year in today’s dollars for a typical beneficiary reaching the full retirement age in 2033,” according to the bipartisan Committee for a Responsible Federal Budget.
The problem is simple. Our leaders have been piling up unfunded liabilities. Politicians have been far more eager to channel benefits to retirees and disabled people than to impose taxes to pay for them.
The Social Security payroll tax rate has not increased since 1990. But in the interim, the giant babyboom generation has begun its mass migration into retirement. Because of rising lifespans, these retirees will be collecting checks for many more years than their parents and grandparents did.
The trajectory of the workforce — the taxpayers who finance the benefits — is not matching this growth. Quite the opposite. In 1990, there were 3.4 workers per retiree. Today, there are 2.8. By 2035 — barring, say, a flood of young immigrants — there will be about two.
By failing to take timely steps to balance resources and obligations, members of Congress and presidents have made solutions steadily harder. When the retirement fund is depleted, the chief alternative to smaller retirement checks will be big tax increases. Each year, the choices get worse. “If policymakers wait until 2034 to make any changes, they will have to increase the payroll tax by 32 percent (to 16.4 percent) or cut benefits for all new and existing beneficiaries by 23 percent,” says the CRFB.
The best time to address this looming crisis was long before now. The next best time: ASAP. The year 2034 is going to arrive whether Social Security is ready or not.