Last July, the House Committee on Ways and Means held a hearing on the Social Security Trustees’ annual report. In short, Social Security (SS) is facing an enormous uphill battle due to the U.S.’s aging baby boomer population, and the SS trust fund will be depleted soon if Congress does nothing. While many ideas to fix the program were discussed during the hearing, it had a consistent overtone throughout – the longer we wait to fix Social Security, the harder it gets.
The Social Security Trustees have released their annual report every year since 1941 to provide updates of the program and its future. This year, the Trustees reported that in 2034 the reserves for the trust fund will be fully depleted. Stephen C. Goss, Chief Actuary of the Social Security Administration, suggested there will be three options if Congress does not address the program’s shortcomings soon: a 25% cut to benefits, an increase in revenues (higher SS taxes) for the program by one-third, or a combination of the two. In order for the program to remain solvent Congress must update how it functions to the current reality.
Like we have highlighted in previous articles, people in the U.S. are living longer, and the wave of baby boomer retirees is upon us. Couple that with the fact Social Security has not been updated since 1983, and it is not hard to see the tremendous pressure placed on current and future generations. In fact, according to Mr. Goss’s testimony, for every beneficiary of Social Security, there are less than three workers paying for that person’s benefits. In 1945 the ratio was 42:1.
Since Social Security has been running a deficit since 2010, many assume the program will never really go insolvent since the U.S. government is financially backing the program. However, with $20 trillion in debt, we are essentially counting on the ability of the federal government to pay its obligations. The current state of our country’s finances is awful to say the least, and Congress should not rely on the assumption that the treasury will continue to meet its obligations. Instead, Congress should proactively fix the program, taking all concern away from beneficiaries who receive benefits.
In sum, the Social Security program will be forced to cut benefits by 25% in 2034 if Congress does nothing. While there are reforms that many Members of Congress like, including raising the retirement age or raising payroll taxes, in order to guarantee the program’s survival, comprehensive reform will be required. However, a piecemeal approach is preferred to just sticking future generations with the blunders of past generations…and their bills.