Social Security

Social Security Will Be Insolvent in 16 Years

So we're probably only 15 years away from Congress deciding that's a big enough crisis to do something about it.


Social Security will be insolvent and unable to pay the full value of promised benefits by 2035—that's one full year later than previously expected—and Social Security's costs will exceed its income by 2020, according to a new report published Monday by the program's trustees.

At the end of 2018, Social Security was providing income to about 67 million Americans. About 47 million of them were over age 65, and the majority of the rest were disabled. If nothing changes, the Social Security Trust Fund will be fully depleted by 2035 and the program would impose across-the-board cuts of 20 percent to all beneficiaries. That may sound like it's a long way off, but 51-year-old workers today will be just hitting retirement age when the cuts kick in. Some current retirees will still be younger than 80.

By that point, some parts of Medicare will already be unable to cover the full cost of benefits.

The trustees' report released Monday shows that the trust fund for Medicare Part A, which covers hospital and nursing home costs, will be gone by 2026. Medicare Part B, which covers routine medical care like visits to the doctor, and Medicare Part D, which covers prescription drugs, are on more solid footing and will remain solvent "indefinitely."

It is important to remember that insolvency is not the same as bankruptcy. By 2026 and 2034, respectively, Medicare and Social Security will not have enough money to pay the full cost of their obligations, but that's not the same as saying they'll have no money at all.

It's also important to keep in mind that these projections are constantly shifting based on economic data, demographic trends, and actuarial projections. Last year, Social Security was supposed to hit insolvency in 2034. The year before, the trustees said insolvency wouldn't hit until 2037. It's a moving target, but time keeps on slipping and ignoring the looming crisis won't make it go away.

Still, Congress could be spurred to action by the threat that Social Security will post losses in just two years. The last time that happened, in 1982, it provided an impetus for federal policymakers to make several changes, including an increase to the payroll tax, that kept the federal old-age pension program solvent. Without policy changes, the new report shows that Social Security would start losing money in 2020 and would continue to operate in the red for decades to come—long past the point when the program would be able to fund its promises to retired Americans.

Right now, there's not much evidence that federal policymakers are ready for that challenge. President Donald Trump has repeatedly promised not to touch Social Security while he's in office, while Democrats in Congress are eyeing Medicare for All proposals that would likely pile massive new obligations onto a federal entitlement program that's already struggling under its own weight.

"That fact that we now can't guarantee full benefits to current retirees is completely unacceptable, and it should be cause enough for every policymaker to rally around solutions to restore solvency to those programs," said Maya MacGuineas, president of the Committee for a Responsible Federal Budget, a nonpartisan group that advocates for balanced budgets, in a statement. "Certainly we should be focused on saving Social Security and Medicare before we start promising to expand these programs."

What's really needed is a complete reconsidering of the relationship between older Americans and those entitlement programs. Both Social Security and Medicare were designed more than half a century ago for an entirely different workforce and population. When Social Security launched in 1935, the average life expectancy for Americans was 61—that means the average person died four years before qualifying for benefits.

Meanwhile, demographics are blowing up the basic premise of how Social Security is funded. There were 2.8 workers for every Social Security recipient in 2017. That's down from 3.3 in 2007, and that's way down from the 5.1 workers per beneficiary that existed in 1960.

Today, the two programs function mostly as a giant conveyor belt to transfer wealth from the young and relatively poor to the old and relatively rich, allowing the average person (who now lives to be 78) more than a decade of taxpayer-funded retirement.

When and if Congress gets around to doing anything, both programs should be restructured to ensure they take care of the truly needy, rather than being benefits for anyone who has reached an arbitrary age. As Reason's Nick Gillespie and Veronique de Rugy wrote in a still-very-relevant 2012 feature on the future of America's entitlements, "Focusing on those truly in need instead of automatically shoveling out larger and larger amounts to well-off senior citizens is the best way to avert looming fiscal catastrophe and restore some morality to an indefensible system."

Those entitlement programs are also the primary drivers of our national debt, which just hit $22 trillion and is on pace to reach levels not seen since World War II by the end of the next decade.

"Every day that passes, the problem gets bigger and the solutions become more difficult to implement," said MacGuineas.

About the only way Congress will get off the hook is if climate change kills everyone in the next 12 years.