There is probably only one widely accepted
fact in the debate about Social Security reform. The Social Security system will pay full
benefits until 2035.
Comically enough, that one fact is not
true. The very bedrock of the debate about Social Security is a date that is
taken out of context, and applied in ways that directly contradict the intent
of the information. 2035 is not a guarantee. It is a warning about what might happen in a good economy.
The system’s ability to provide full
benefits depends upon available reserves in the Social Security Trust Fund to
provide a cushion for periods where the expense of the system exceeds the
revenue collected. In the 2020 annual report, the Trustees estimated that the
Trust Fund should last until sometime between 2031 and 2042. It says that there is roughly a 50%
chance that Social Security Trust Fund will last until 2035.
The media generally reports a very
different story, one in which Social Security will pay full benefits until 2035 with certainty. National Association of Plan Advisors suggests: “That means that until 2035, the trust funds will be able to pay full benefits scheduled under current law on a timely basis.”
The mistake is not limited to the
press. The US Treasury Department
publishes a Facts Sheet, “Social Security, which pays retirement, survivor, and disability benefits, will be able to pay scheduled benefits on a timely basis until 2035, the same as reported last year.” It is simply not true.
There is nothing certain about the
projected date of insolvency for Social Security. In 1977, Jimmy Carter gave America a guarantee that Social Security would pay full benefits for more than 50 years. “This
legislation will guarantee that from 1980 to the year 2030, the Social Security
funds will be sound”. By 1982, the Social Security Trust Fund was within a year of exhaustion.
The Trustees provide policy makers with three
different hypothetical outcomes based on different economic and demographic
assumptions. The results range from an
outcome in an economy unfavorable to Social Security to one that will make
Social Security last longer. The most
commonly used estimate is the “intermediate”, which represents the Trustees’
best estimate “of likely future demographic, economic, and program-specific
conditions”.
It is important to understand that this
date has limited practical use. While the theoretical economy is built on
reasonable assumptions, the probability that these assumptions will materialize
in concert over the entire period is infinitesimally small.
So the data is better suited to provoke a
question than to provide an answer.
The date 2033 provides a general warning: even
in a good economy, the imbalances in Social Security should start falling on
retirees in roughly 20 years. A person
turning 66 today expects to live long enough to be affected. The longer we wait, the higher the cost to
fix. The question is: is that general
outcome acceptable?
The stated intent of these estimates is to show policy
makers and the public at large the degree of uncertainty embedded in the Social
Security system. Instead of providing a view of the uncertainty to
the voters, the information is used to reassure them that reform is not an
immediate priority.
