Social Security, the most successful domestic program in the history of the United States government, will start to run dry in 2033, leaving the program with only enough revenue to pay about 75 percent of benefits, says outgoing Social Security Commissioner Michael J. Astrue.
The 2012 Trustees Report shows that Social Security is 100 percent solvent until 2033, but faces a moderate long-term shortfall. In 2011, Social Security had a surplus – revenue plus interest income in excess of outgo – of $69 billion. Reserves are projected to grow to $3.1 trillion by the end of 2020.
Then, if Congress takes no action in the meantime, reserves would start to be drawn down to pay benefits. In the highly unlikely event that Congress does not act before 2033, the reserves would be depleted and revenue coming into the trust funds from workers’ and employers’ contributions would cover about 75 percent of scheduled benefits (and administrative costs, which are less than 1percent).
Astrue, 56, says benefit cuts and tax increases are inevitable — despite fierce opposition to both. He cautions that to simply tax more would disproportionately burden the younger generation which could be an economic drag.
The age when retirees can receive full benefits is gradually increasing from 66 to 67, and there are proposals to increase it gradually even more, perhaps as high as 70. Astrue says it is inevitable. “Most of the pressure on the system comes from the fact that we've had great medical advances and people are living a lot longer than before.”
Increase in Social Security payroll taxes is inevitable as well. Now they only apply to the first $113,700 of a worker's wages. Lifting the payroll tax cap would have less of a negative impact on the economy than raising the rate itself, according to Astrue.
The Social Security Board of Trustees released its annual report on the Social Security Trust Funds indicating the combined assets of the Old-Age and Survivors Insurance, and Disability Insurance (OASDI) Trust Funds will be exhausted in 2036, one year sooner than projected last year.
Astrue's six year term was marked by increasingly dire warnings about the long-term financial health of the massive retirement and disability program. Astrue also worked to reduce backlogs of people applying for disability claims.
Social Security’s finances are strong but require moderate adjustment for the long run. Timely revenue increases and/or gradual benefit adjustments can bring the program into long-term balance and extend the solvency of the disability insurance trust fund.
Astrue has urged Congress to shore up the program's finances but has not publicly endorsed any solutions.