The new Social Security Trustees report was released today. The report found that the Social Security trust fund is now projected to be exhausted in 2033, three years earlier than last year’s projections. Once the trust fund is exhausted the program is still projected to be able to pay 75% of benefits in perpetuity, based on continuing payroll taxes. From the trustees:
The deficit of non-interest income relative to expenditures was about $49 billion in 2010 and $45 billion in 2011, and the Trustees project that it will average about $66 billion between 2012 and 2018 before rising steeply as the economy slows after the recovery is complete and the number of beneficiaries continues to grow at a substantially faster rate than the number of covered workers. Redemption of trust fund assets from the General Fund of the Treasury will provide the resources needed to offset the annual cash-flow deficits. Since these redemptions will be less than interest earnings through 2020, nominal trust fund balances will continue to grow. The trust fund ratio, which indicates the number of years of program cost that could be financed solely with current trust fund reserves, peaked in 2008, declined through 2011, and is expected to decline further in future years. After 2020, Treasury will redeem trust fund assets in amounts that exceed interest earnings until exhaustion of trust fund reserves in 2033, three years earlier than projected last year. Thereafter, tax income would be sufficient to pay only about three-quarters of scheduled benefits through 2086.
The slightly earlier date is mostly due to recent high energy prices and the continuing poor economy that has resulted in high unemployment which lowers payroll tax collection.
The most significant factor is lower average real earnings levels over the next 75 years than were projected last year, principally due to: 1) a surge in energy prices in 2011 that lowered real earnings in 2011 and is expected to be sustained, and 2) slower assumed growth in average hours worked per week after the economy has recovered. An additional significant factor is the one-year advance of the valuation period from 2011-85 to 2012-86.
While much is likely to be made about the three year earlier date, it is important to remember we are talking about projections about an event over 20 years into the future. Very long term predictions are inherently very uncertain.
The large effect the state of the economy has on these new projections shows the huge impact that events and policy decisions not directly related Social Security can have on the projections of the long term solvency of the trust fund.