Social Security’s Financial Outlook: The 2014 Update in Perspective
The Social Security Administration's 2014 Trustees Report found little change from the previous year. While Social Security’s 75-year deficit rose slightly from 2.72 percent of payroll to 2.88 percent, the overall date of the trust fund’s exhaustion is still 2033 and the deficit is still 1 percent of GDP. After the trust fund runs out in 2033, payroll taxes would be sufficient to cover around three-quarters of benefits, assuming tax rates and benefit formulas remain constant.
One of the primary reasons for increased costs is the increasing ratio of retirees to workers, and the report predicts that program costs will rise rapidly beginning in 2035. Higher rates of disability have additionally accelerated the exhaustion date of Social Security, and the disability trust fund is scheduled for exhaustion in 2016. Congress may reallocate payroll tax revenues from the Old-Age and Survivors Insurance (OASI) trust fund to the Disability Insurance (DI) fund, which would make the OASI program look worse. Another issue is Social Security’s legacy debt, or debt incurred from paying early beneficiaries much more in benefits than what they contributed. The author suggests shifting the legacy debt onto personal income tax to more equitably distribute the cost burden.
The author concludes that the Social Security shortfall is manageable, but action must be taken in the long run. In order to eliminate the deficit over the long term, Congress must either cut benefits or put more money into the system.
*After the publication of the brief, the author later commented that the Trustees report removed replacement rate data, or data showing what percentage of pre-retirement earnings Social Security replaces.