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The Social Security trust fund will exhaust its assets in 2033--three years earlier than projected last year, Treasury Secretary Timothy F. Geithner said during a news conference discussing the findings of the 2012 Social Security Trustees' report released April 23.
When the trust fund is exhausted, there will be enough noninterest income to pay about 75 percent of scheduled benefits to retirees, the report said. Noninterest income fell below program costs for the second consecutive year in 2011 and the trustees estimate that will continue through the 75-year projection period.
“The projections in this year's report are somewhat more pessimistic than last year's report,” Geithner said. “While the uncertainty surrounding these 75-year projections is substantial, nonetheless, these reports emphasize the importance of building consensus on reforms that will put these programs on sounder financial footing,” he said.
Additionally, the report said the projected actuarial imbalance during a 75-year period is 2.67 percent of taxable payroll, a 0.44 percentage point jump from the 2011 numbers (94 PBD, 5/16/11; 38 BPR 938, 5/17/11).
“That may not seem like a big difference to the uninitiated, but this is now the largest actuarial deficit that we have seen in Social Security since the 1983 reforms and this is the second largest single-year deterioration that we've seen in all the trustees' reports since the last major reforms,” said Charles Blahous, a public trustee for the Social Security system and senior research fellow at George Mason University's Mercatus Center.
During the briefing the trustees' also discussed the findings of the 2012 Medicare Trustees' report (see related article).
“In different respects, both Social Security and Medicare finances did take a further turn for the worse this year. And of course, as with nearly every year, the mere passage of time further constrains our options for bringing these programs to long-term solvency,” Blahous said.
The new projected trust fund exhaustion date of 2033 is the earliest in a decade, but not the earliest in the history of trustees' reports, Blahous said.
“There were a few trustees' reports in the mid-1990s that saw trust-fund depletion happening earlier, but we have to remember now it's much later in the game,” he said.
Blahous said the sheer size of the Social Security trust fund's financing shortfall means that 21 years is not long at all. “Our window for dealing with [the shortfall] without substantially disruptive consequences is closing fairly rapidly,” he said.
The 25 percent benefit reduction that is projected to be necessary in 2033 would impact future beneficiaries and require cutting the benefits of recipients “already on the rolls,” Blahous said.
Blahous said policymakers' desires to prevent changes in benefits and to protect low-income beneficiaries from reductions make it “clear we don't have a great deal of time left to resolve the imbalance in a way that people on both sides of the aisle would find acceptable.”
Nancy A. LeaMond, AARP executive vice president, released a statement reacting to the findings of the Social Security and Medicare Trustees' reports, saying the need for action is clear.
“The trustees … make clear that Social Security's long-term financial challenges must be addressed. While Social Security is not in crisis, it will require modest changes to ensure current and future generations will receive the benefits they've earned. The longer Washington waits to address these challenges, the more difficult it will become for workers who are trying to plan for their future,” LeaMond said.
Blahous' statements during the briefing also called for Congress to act sooner rather than later.
“The shortfalls ahead are much larger now than can be readily corrected at the last minute as was done in 1983, so bipartisan action needs to be responsible, decisive, and prompt,” he said.
A summary of the Social Security and Medicare trust funds reports can be found at http://www.ssa.gov/oact/trsum/index.html, and full text of the Social Security report can be found at http://www.ssa.gov/oact/tr/2012/index.html.
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