Social Security’s finances remain in danger, according to the official 2017 Social Security Trustees Report. With drastic, across-the-board benefit cuts looming because the trust fund is projected to run dry, achieving long-term solvency should be the first order of business in enhancing Social Security.
All Social Security recipients face a benefit cut of 23% in 2034. The retirement of the baby boomers means that more Americans will be receiving benefits while fewer workers will be supporting them through payroll tax contributions. As Social Security pays out more in benefits than it takes in through revenue, the trust fund will be depleted. After the trust fund is exhausted in 2034, benefits will be financed solely through incoming revenue, which will only cover 77% of scheduled benefits.
Acting sooner means that necessary changes will be less burdensome. Instead of allowing an abrupt 23% cut in benefits or a drastic 32% increase in payroll taxes to cover the shortfall in 2034, acting well in advance means that reforms can be slowly phased in, changes will be spread out across more recipients, and everyone will have more time to prepare. As the report states, “The Trustees recommend that lawmakers take action sooner rather than later to address these shortfalls, so that a broader range of solutions can be considered and more time will be available to phase in changes while giving the public adequate time to prepare.”
Bipartisan plans show that reform can achieve long-term solvency while aiding the most vulnerable. The comprehensive plans from the Simpson-Bowles and Domenici-Rivlin commissions included Social Security proposals that relied on a mix of new revenue and slowing of benefit growth as well as enhanced benefits for the most vulnerable recipients. Recent plans from the Bipartisan Policy Center and American Enterprise Institute also include ideas worthy of consideration.
Broadly expanding benefits will crowd out important investments and place a greater burden on future generations while benefiting many wealthy retirees. Some are making promises to expand Social Security for all recipients without addressing the underlying financial problems. Perhaps the most prominent plan to expand benefits for all would cost the equivalent of $1.2 trillion over ten years when fully phased in, and a good chunk of that would benefit the wealthiest retirees. For that same amount of money, we could provide universal preschool and childcare, make college virtually debt-free, double medical research, fully fund the Highway Trust Fund to build and maintain roads and bridges, and completely reverse the non-defense “sequester” cuts. Or we could significantly reduce deficits, which are forecast to top $1 trillion annually by 2022. Investment and deficit reduction will benefit future generations. On the other hand, they will bear the burden of financing expanded benefits.
The trustees overseeing Social Security have been warning for years that Social Security faces serious financial problems and that our leaders should act sooner rather than later. Unfortunately, as insolvency gets closer, the discussion gets farther away from fixing the problem as politicians make unrealistic claims about how it can be solved as well as campaign promises that take options off the table.
Doing nothing means that when today’s 50-year-olds reach the normal retirement age in 2034, all recipients will see a severe reduction in scheduled benefits. Broadly expanding benefits will worsen the problem while providing more benefits to wealthy retirees who don’t need them.
Social Security doesn’t need drastic changes, but action is required. Pursuing long-term solvency first will ensure that Social Security will provide meaningful retirement security for generations to come.
Read the 2017 Social Security Trustees Report.
See a detailed analysis of the 2017 Social Security Trustees Report from our partners at the Committee for a Responsible Federal Budget.
See how old you will be when Social Security's funds run out and how it will affect you, along with more Solvency First resources.