Social Security’s annual checkup found significant problems with the finances of the disability insurance program, which only has enough revenue to pay out promised benefits until the fourth quarter of 2016. The annual report of the Board of Trustees of Social Security found that the retirement benefit program in on much firmer financial ground, with enough cash to make promised payments until 2035. Here’s how Social Security’s income compares to its expenses.
Paying in. There are 166 million people who contributed payroll taxes to the Social Security system in 2014. Employees and companies collectively deposited $756 billion in the Social Security trust funds. Workers pay 6.2 percent of their salary into the system, which employers match, and self-employed people contribute 12.4 percent of their earnings. These taxes were paid on income of up to $117,000 in 2014, after which no Social Security tax applies. The program received additional income from the taxation of benefits and interest accumulated on the trust fund reserves, pushing Social Security’s total income up to $884 billion.
Claiming payments. The Social Security program paid out benefits to 59 million people in 2014, including 42 million retired workers and their dependents, 6 million survivors of deceased workers and 11 million disabled people and their dependents. Total expenditures included $848.5 billion in 2014, which includes $6.1 billion for administrative costs. The average payout in December 2014 was $1,329 monthly for retired workers and $1,165 for disabled workers.
Fiscal health. The Social Security system, which includes both retirement and disability benefits, is projected to have resources to pay out promised benefits until 2034. After that, the program expects to have income sufficient to pay out 79 percent of scheduled payments. “The retirement of the baby boom generation will increase the number of beneficiaries much faster than the number of workers increases, as subsequent lower birth rate generations replace the baby boom generation at working ages,” the report found.
Disability insurance. The Old-Age and Survivors Insurance trust fund, which has a projected depletion date of 2035, has significantly better long-term financial prospects than the Disability Insurance trust fund, which has a projected depletion date of the fourth quarter of 2016. After that, the disability insurance program will only be able to pay 81 percent of disability benefits. A cut of this size would reduce the average $1,165 monthly payment for disabled workers to about $944. “Legislative action is needed as soon as possible to address the disability insurance program’s financial imbalance,” according to the report. One temporary solution would be to divert funds from the retirement trust fund to pay disability benefits.
Potential fixes. There are a variety of tweaks that could be used to fix the long-term fiscal health of both trust funds. A tax increase of 1.31 percentage points for both workers and employers (2.62 percentage points for self-employed workers) would correct the problem. Or scheduled benefits could be reduced by 16.4 percent for all current and future beneficiaries or by 19.6 percent for everyone who becomes eligible for benefits in 2015 or later. Some combination of these two approaches, such as a smaller tax increase and smaller benefit cut would also make the program solvent for the next 75 years. Tinkering with the maximum amount of earnings that are subject to the payroll tax, retirement age or how cost-of-living adjustments are calculated could also play a role in how much of a tax increase or benefit cut is necessary. “Implementing changes soon would allow more generations to share in the needed revenue increases or reductions in scheduled benefits,” the Social Security Trustees caution.
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5 Facts About Social Security’s Finances originally appeared on usnews.com
