No, You Won’t Lose All Of Your Social Security Benefits

The Social Security OASI Trust Fund for retirement benefits is projected to be exhausted by 2034, according to the summary of the Annual Social Security and Medicare Trustees Report that was released on April 22.

SSATrustees Report Summary

Does this mean that in 2034, retirees would receive nothing from Social Security? 

Absolutely not!

The Social Security OASI Trust Fund is a supplemental source of funding for retirees’ Social Security benefits, supporting about 24% of the total cost of the program. FYI: The official name for Social Security retirement benefits is “Old-Age and Survivors Insurance,” hence the acronym “OASI.”

The primary source of funding for the OASI program is FICA taxes paid by workers and other sources such as federal income taxes on retirees’ Social Security benefits. These sources support about 76% of the program’s total cost. If the Trust Fund is exhausted and Congress doesn’t act to shore up the system’s finances, in 2034, the Social Security Administration could still afford to pay about 76% of total benefits. While a 24% benefit reduction would certainly be bad news, let’s be clear: Your benefits won’t disappear completely.

The Trustees Report also reports results for the Disability Insurance Trust Fund, which, combined with the OASI Trust Fund, is referred to jointly as the OASDI Trust Funds. The combined funds are projected to be exhausted by 2035, and at that time, about 79% of total benefits could still be paid.

This latest Trustees Report did not reflect the economic impact of the coronavirus pandemic—it’s simply too early to revise the actuarial analyses to reflect these recent events. However, we can gain some insights into the potential impact of these recent events by understanding the role of the actuarial assumptions that Social Security’s actuaries make to analyze Social Security’s finances.

The actuaries must make many critical assumptions about future experience during the next 75 years, including:

• growth in productivity, wages, and the Consumer Price Index, 
• how long retirees and beneficiaries will live, 
• rates of unemployment and disability, and 
• changes in immigration and fertility. 

The actuaries don’t use a crystal ball to make these assumptions—they prepare extensive research to make their best estimate of future experience regarding these assumptions. As you can imagine, in spite of their best efforts, it’s likely that actual future experiences will be different from their assumptions. As a result, to demonstrate the sensitivity of the assumptions on the results, the actuaries prepare three sets of analyses of the system’s finances:

• “intermediate assumptions” (their best estimate)
• “low-cost assumptions” (optimistic)
• “high-cost assumptions” (pessimistic)

The impact of the pandemic on the various actuarial assumptions can vary. However, if you’re worried that the overall impact of the pandemic will be to reduce the system’s funded status, then a first “order of magnitude” guess about the impact of the pandemic would be to look at the high-cost assumptions. In this case, the full Trustees Report projects that the combined OASDI Trust Funds would be exhausted in 2031 using the high-cost assumptions, compared to 2035 using the intermediate assumptions.

By the way, the Trustees Report also projects that the combined OASDI Trust Funds would become exhausted in 2079 under the low-cost assumptions.

The good news is, Social Security’s finances are being analyzed by very capable people. I have the privilege of knowing Steve Goss, chief actuary of the Social Security Administration, and his colleague, Karen Glenn. They’re both extremely capable actuaries, and they take seriously the significant challenge to analyze the world’s largest pension system. I’m grateful that we have experts who apply science, research, and analysis to help manage a program that’s so critical to the financial security of our nation’s retirees and beneficiaries.

But it’s ultimately up to Congress to take steps to shore up Social Security’s finances, by approving some combination of tax increases and constraints on the growth of future benefits. It’s up to voters to apply pressure on our elected officials to make the necessary hard choices, preferably sooner rather than later.

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