It’s Past Time For Congress To Fix Social Security

On August 31 the Trustees of Social Security and Medicare finally issued their 2021 annual report. The news wasn’t good, but not as bad as many expected.

Normally the trustees issue their annual report sometime in the Spring. Last year it was issued April 22. This year the actuaries apparently spent more time massaging the data and adjusting their assumptions about the effects of the pandemic.

The bottom line wasn’t much different from the 2020 report. The trustees and their actuaries estimate that the Social Security retirement trust fund will be unable to pay benefits after 2033. That’s one year earlier than estimated in the 2020 report.

After that, the annual tax revenue will fund about 76% of promised benefits. Farther into the future, after about 2045, the system will be able to pay only 70% of promised benefits.

Without action by Congress, presumably there will be a 24% across-the-board benefit cut beginning in 2034. But even that’s not clear, because the law doesn’t give the Social Security Administration any direction about how to reduce benefits or take other actions when there’s a revenue shortfall.

The report also covers the Medicare Part A trust fund. That trust fund will run out of money after 2026. But tax revenue will be able to pay 91% of benefits after that.

A number of outside analysts expected the condition of the retirement trust fund to be worse than stated in this report. But the data in the report indicate that revenues of the trust fund in 2020 increased more than benefit payments increased.

Also, the Social Security actuaries were able to forecast only a modest decrease in the trust fund’s life by changing a number of their assumptions.

The main conclusions of the trustees are based on what they call the intermediate scenario assumptions. They also offer low- and high-cost assumptions and forecasts for those who want to see results from different assumptions.


Among the new assumptions in the intermediate scenario, the actuaries forecast that the U.S. fertility rate will increase starting in 2036. They also assume the average unemployment rate will be lower than in their previous reports.

The report says that the steep drop in the economy in the second quarter of 2020 has been followed by a gradual recovery. The trustees assume full recovery won’t occur until 2023 and that GDP is permanently lowered by 1% because of the pandemic.

Other effects of the pandemic are increased mortality rates (which helps the trust fund by reducing benefit payments) and delays in birth and immigration (which hurt the trust fund by reducing the size of the work force paying taxes into the system).

The net result is the labor force is assumed to increase by 0.8% annually for the next 10 years under the intermediate assumptions.

Inflation is assumed to be 2.40% annually in the intermediate scenario assumptions, though the 2022 cost of living adjustment is likely to be around 6%.

People can disagree about the assumptions used in the report.

What’s important is the end of the trust fund is a little over 10 years away under the intermediate assumptions. Changes have to be made if 100% of the promised benefits are to be paid. The longer Congress takes to act, the more severe the adjustments eventually will be.

Congress has known for more than a couple of decades that the current funding and benefit system isn’t sustainable. Adjustments back then would have been minor compared to the adjustments that will be needed now or in a few years.

It could be that a majority in Congress and the administration believe that federal budget deficits of any level aren’t important. The current spending proposals indicate that might be the case.

If so, the solution is clear. Congress can declare that any shortfall in Social Security will be covered by a contribution of general funds from the Treasury Department. The Social Security shortfall simply would add to the annual budget deficit and to the federal debt.

Otherwise, Congress will have to enact a menu of tax increases and benefit decreases and decide who should bear those burdens.

I continue to believe that those already retired or within five to 10 years of retirement will be protected from benefit reductions.

There likely will be exceptions for those with very high incomes or net worth. For them, there could be benefit reduction but more likely are some indirect benefit decreases, such as increasing the amount of Social Security benefits taxed at higher income levels or enacting a surtax on high-income Social Security recipients.

A long shot way to shore up the trust fund is to increase the labor force, perhaps by increasing immigration. But that doesn’t seem likely in the near future.

The most likely scenario is that younger workers (those ages 50 and under) will face higher taxes during their working years and lower benefits after their careers. The longer Congress waits to act, the more severe these changes will be.

Whatever Congress does or doesn’t do, Social Security’s fiscal difficulties aren’t a good reason to change your Social Security claiming strategy if you’re within 10 years of retirement. Most people should wait to claim their benefits as long as possible in order to maximize lifetime benefits, as I explain in my book Where’s My Money?: Secrets to Getting the Most out of Your Social Security.

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