With the publication of the 2021 report from the Social Security Trustees, I noticed a number of online reports with titles like, “Social Security Trust Funds Could Run Short by 2034 as Pandemic Takes Toll” or “Will Social Security Benefits Be There for You?.” These articles remind me of cotton candy; it appears substantive but upon closer examination there is nothing much there.
Look at what the report actually says.
Given the gravity of the situation, I wanted other sources of information beyond my LinkedIn feed. So I read the Trustee’s summary instead. Here is what I learned:
- In 2020, the combined Old-Age and Survivors Insurance (OASI) and Disability Incomes Trust Funds (OASDI) paid more than $65 billion in benefits than they collected from tax revenue.
- Since the Trust Funds are required to be self-sustaining, the Trustee’s report explains the deficit is being financed from the surpluses accumulated in prior years as well as interest on these balances. But there is no bank account, asset pool, or lock box where these assets are held. These so-called “surpluses” are just an accounting entry; the money was previously spent on other governmental programs.
- In reality, this deficit is financed by government borrowing and has been since 2010!
- The Trustees project the OASDI “surpluses” will be exhausted by 2034.
- When reserves are depleted – and given the current requirement that the Trust(s) must be self-sustaining – the Trustees project continuing tax income will be sufficient to only pay only 76 percent of scheduled benefits.
These headlines foster inaction.
Few of these facts are communicated fully in most media reports. As a result, some millennials may see “Will Social Security Benefits Be There…” or “Could Social Security Benefits Run Short….” and conclude they will receive no benefits. And the public believes the projected 2034 “deadline” is fixed – like the appearance of a solar eclipse – so no pressure is put on politicians to act now.
Of course, the ability to pay benefits at current levels until 2034 is predicated on continued deficit spending. If the U.S. Government is forced to begin addressing its structural deficits sooner, more immediate action may be needed. And if you think this impossible, as recently as 1990 the U.S. Congress was forced to cut spending and raise taxes to calm turmoil in the financial markets over rising U.S. debt.
Alternatively, Congress could pass a law tomorrow to allow the Trust(s) to spend more than it collects from tax income and accumulated surpluses. This is in reality how the program currently operates but politicians would rather keep this in the shadows than draw attention to the problem by enacting reforms.
Employers are well placed to inform.
I believe headlines reporting that Social Security will be bankrupt in 2034 lead to a perfect storm of procrastination by politicians and nihilism among many young people about the futility of saving. But I have given up hope that media accounts can ever be more than “clickbait” on this issue. So I have been considering other ways of how the public might become better informed:
Employers might want to start educating participants about the role Social Security plays in their future financial security, the potential issues with the Trust Fund, and the importance of individual savings.
Currently, employers and financial service companies continue to project benefits past 2034 assuming 100% of scheduled benefits will be paid. What if, instead, they updated projections based on the most recent estimates on when the Trust Fund will be exhausted, with an explanation of the change? This would surely be the most straightforward depiction of the current situation and people could start planning now on the savings needed to make up the benefit cut. And I can’t imagine any media accounts or advocacy ad more effective than personalizing the cut in benefits required if no action is taken.
Since young people are heavily impacted by the projected shortfall, I dream of the day when someone with a huge social media presence posts a video explaining the issue, outlines what benefits are at risk, and makes the case that policy makers shouldn’t wait until 2034 to act.
In considering potential spokespeople, I nominate the Tik-Tok star known as Spencer X. He can beatbox the issues to his 50 million followers! (And yes, I had to use Google to find a TikTok star.)
Put Social Security on a sound footing.
It’s also too easy to blame the media for failing to report the subtleties of this situation. All of us – citizens, employers, industry, politicians – are just putting off until tomorrow what should be done today. There has been a lot of talk recently about economic anxiety and the fear of future decline. I can’t think of a better way to address this than to put the Social Security system on a sound actuarial system, whatever that entails.