Social Security on the Brink?

Art by Ellen Weinstein

Each year, the trustees of the Social Security and Medicare trust funds report on the current and projected financial status of the two programs. The annual reports include extensive information about the current operations of these important social insurance programs and careful analysis of their outlook.

The trustees did not publish last year’s report until August 31. In it, they projected that the combined asset reserves of Social Security’s Old-Age and Survivors Insurance and Disability Insurance trust funds would be depleted in 2034, with 78% of benefits payable at that time.

Current death rates notwithstanding, American life spans continue to stretch, meaning the Social Security funds in the reserves will need to support more people, longer. A February report from the American Society of Actuaries projected that life expectancy could go up another four years by 2090.

Will Congress Act?

While the projected depletion date looms large for retirement security experts, it is unclear whether Congress will take any immediate action on the issue.

“Private retirement savings seems like an area where they have been able to reach bipartisan agreement lately, but Social Security is harder,” says Kathleen Romig a senior policy analyst at the Center on Budget Policy and Priorities. “Fundamentally, you have to either raise taxes or cut benefits, and no politicians want to do either of those things.”

The 2021 trustees report shows that to keep the trust funds solvent would require increasing payroll taxes by 3.36% and reducing benefits by 21%, and that to defer action would necessitate even more drastic changes. Even so, Alice Munnell, director of the Center for Retirement Research at Boston College, says she believes it could be years before Congress acts on Social Security.

A Solution Before 2034

Even if there is no action this year, Nancy Altman, president of Social Security Works, says she expects lawmakers to find a solution before 2034.

“There’s no way that Congress will let benefits not be paid,” she says. “That’s not a realistic concern. But addressing it now would show that the elected leaders are looking closely at this and they want to restore some sense of security.”

Regardless of what happens in Congress in the near term, plan sponsors and their advisers can serve their participants by educating them about Social Security. Besides teaching best practices for claiming Social Security, retirement planning professionals can also help dispel the myth that the benefit is at risk of disappearing entirely.

“There’s a misconception out there that Social Security is going away completely, and that’s simply not true, even if potential benefit reductions are on the horizon,” says Catherine Collinson, CEO and president of the Transamerica Institute and president of the Transamerica Center for Retirement Studies. “Current concerns focus on the depletion of Social Security’s trust fund, not on its overall ability to pay benefits, albeit at a lower rate. That’s an important distinction for plan participants to understand.”

“The best case is to plan for Social Security benefits to be exactly the way they are,” she adds. “But also think about what are the potential levers that policymakers may adjust that could affect one’s retirement planning.”