Sooner than we think. According to the latest trustees’ report for Social Security released last Monday, Social Security’s combined trust funds will be exhausted by 2033 — three years earlier than last year’s projections, and seven years earlier than projections made in 2006. This means that by 2033, Social Security benefits would have to be slashed significantly. Sounds bad, right? Well, it gets worse.
If history is our guide, this trend of more and more pessimistic predictions is likely to continue. Check out this chart:
The trend is clear: The Old-Age, Survivors, and Disability Insurance (OASDI) trust fund is being exhausted much faster than predicted.
The pattern of earlier exhaustion dates has been a function of various factors including demographics (e.g., population, life expectancy), economic prospects (e.g., cost of living, average wages), and program-specific assumptions (e.g., beneficiaries’ current-payment status). But the real problem is that, for years, the federal government has used Social Security’s surpluses to pay for roads, education, and wars. Now that the Social Security program will be demanding its money back from the Department of Treasury on an annual basis, the government will have to borrow more and more from investors, increasing the publicly held debt at a greater pace.
Social Security benefits hinge on what’s available in the trust funds. Without a positive balance in the funds, the program won’t be able to pay full benefits, and will be able to disburse only what it collects in taxes, meaning an across-the-board cut in benefits. By 2033, benefits would have to be slashed by 25 percent. But until then, deficits will grow along with our debt.
You can read more about this issue in my piece in the Washington Examiner last week, and in my summary of the report here.