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Social Security Slated to Run Dry in 2033, Trustees Warn

April 23, 2012 at 12:00 AM EDT
Social Security will exhaust its trust fund in 2033 -- three years earlier than previous projections, the program's trustees announced Monday. Ray Suarez, Nancy Altman of Social Security Works and the Heritage Foundation's David John discuss its long-term health amid a retiring baby boomer population and a weakened economy.
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RAY SUAREZ: Next, the long-term health of Social Security worsens.

That’s according to the latest projections today from its trustees. The program’s trust fund will become insolvent in 2033, three years earlier than previously estimated. The Social Security fund for disability is in even tougher shape. It’s expected to move into the red in 2016, but trustees favor transferring money to shore it up.

Treasury Secretary Tim Geithner spoke of the impact to come at a briefing today.

SECRETARY OF TREASURY TIMOTHY GEITHNER: The reports project that when considered on a combined basis, Social Security’s retirement and disability programs have dedicated funds sufficient to cover benefits for the next 20 years.

But, in 2033, incoming revenues and trust fund resources will be insufficient to maintain the payment of full benefits. After that time, dedicated funds will be sufficient to cover about three-quarters of full benefits.

RAY SUAREZ: Currently, the average Social Security benefit for a retiree is $1,232 a month. Medicare’s finances are no worse than they were a year ago, but it faces a bleaker situation overall. Its hospital insurance fund will become insolvent in 2024, and that’s assuming Congress and the president allow scheduled cuts in payments to take place in future years, something that has not been the case historically.

Tonight, we focus on the state of Social Security.

Nancy Altman is the co-director of the group Social Security Works. She’s also the author of the book “The Battle for Social Security.” And David John is a research fellow specializing in retirement security with the Heritage Foundation. He worked previously on Capitol Hill on proposals to change the program.

And, Nancy Altman, the fund is still in surplus, collect morning money than it pays out. The trust fund is growing, but the date at which they won’t be able to pay the guaranteed payout just moved three years closer. So, is it generally in good shape, generally in danger?

NANCY ALTMAN, co-director, Social Security Works: It’s generally in good shape.

Social Security — the Social Security system from the beginning has been very closely monitored and has always been very conservatively managed. So every year, it projects out 75 years. Now, when you project out that far, you are going to show these fluctuations. Recent trustees reports have shown that the exhaustion date is 2028. Others have shown 2048. So 2033, 2035, 2036 are all within that range.

The important point is what you said. Social Security is projected to have a $60 billion surplus this year. It has a $2.7 trillion accumulated reserve. And it has two decades, Congress has 20 years to figure out and ideally sooner to give peace of mind, but it is — of all the federal programs, it’s in the best shape.

RAY SUAREZ: David John, generally in good shape or generally in danger?

DAVID JOHN, Heritage Foundation: Generally in danger. I mean, today’s report essentially is similar to if you are falling. The good news is, we haven’t hit the ground yet. But the trajectory is accelerating.

RAY SUAREZ: Well, you are both looking at the same stats.

DAVID JOHN: Yes, we are.

(LAUGHTER)

RAY SUAREZ: What’s giving you such a gloomier outlook?

DAVID JOHN: Well, because the overall actuarial deficit which Social Security calculates is the worst today with this report than it has been since the 1983 reforms.

It’s growing worse. And what we’re seeing is the effects of a weakening economy on the system. We’re seeing people working less. We’re seeing wages not increasing to the level that we expected. And, of course, Social Security is mainly financed with a payroll tax on those wages, so if they don’t grow, then the program doesn’t meet its projection.

RAY SUAREZ: What is causing that? Is the economic swoon of 2008-2009, more people unemployed, more people retiring earlier, fewer people paying into the kitty?

DAVID JOHN: It’s that. And the other thing is that it’s the demographic change. We are an older society. We have more people who are retiring.

And we’re going have more and more baby boomers who are going to be collecting Social Security. Social Security can basically, as it’s currently structured , pay out about 75 percent of what it has promised starting in only 21 years. And that seems like a long time, but given the speed that Congress acts, it may take us awhile.

RAY SUAREZ: Nancy Altman, it doesn’t sound like you disagree with David’s numbers, just his conclusions.

NANCY ALTMAN: Exactly right.

I would say, you know, most people if you told them they could pay all of their expenses for the next 20 years, and after that, they could pay 75 cents on the dollar, but they’d need a little bit more, most people would say, really, I could pay my mortgage, my car loan, everything?

That is the situation Social Security is in. Its overall cost is quite modest compared to Social Security systems all around the world. The total is about 6 percent of gross domestic product at its most expensive. We are a wealthy country and can afford those benefits.

RAY SUAREZ: What about disability insurance? It is a much less talked-about part of the program, but key for families that have lost a breadwinner. Why is it in a different shape from the program as a whole?

NANCY ALTMAN: That’s a very — it’s very — I’m glad you are raising that, because it is important to remember that Social Security is more than a retirement program, as important as that is.

It is wage insurance, so it provides wages in case someone becomes disabled or dies leaving children. And the Disability Insurance Trust Fund is a separate trust fund from the old age trust fund.

Part of what’s happened there are the economy. The people who have really been disabled and holding on have lost jobs. Some of it is the change in work force. Women’s labor force participation is off. . .

RAY SUAREZ: So when you say disabled and holding on, you mean people who might be disabled aren’t as quick to go back to work?

NANCY ALTMAN: No, no, just the opposite, that they really fit the definition of disabled, but they prefer to work and they have been holding on to their jobs.

But now with the downturn in the economy, they have lost their jobs, they have run out of unemployment, they have no other choice but to apply for these benefits. But the important point is that, historically, policy-makers who have seen the old age portion of Social Security, the survivors, see life insurance and the disability insurance as one.

They are these separate trust funds. But if you simply reallocate, which is what Congress has done historically, they could do it next week. And if you reallocate the amounts from the workers’ contributions and employers’ matches that go to Social Security, both programs are fine until 2033.

RAY SUAREZ: Do you agree, a simple fix on disability, or simpler?

DAVID JOHN: Well, it’s a simple fix on disability. The problem is the disability program has been a problem for years now.

We have got huge delays in processing some of the applications. There are different standards depending on which area of the country that you live in, and things like that. So disability definitely needs to be fixed. And that’s really the red flag from this report.

But it goes beyond that, because Nancy talked about 2 percent of GDP. Well, we have got a $15 trillion economy. So that means that Social Security basically needs about $300 billion a year on top of what it is receiving from its payroll tax. That’s just not sustainable, because that’s money that would otherwise go to schools and roads and defense and things like that.

RAY SUAREZ: There was a grand bargain in the 1980s that put Social Security on firmer footing for the next generation.

DAVID JOHN: Yes. Yes.

RAY SUAREZ: Would it be as hard to get something like that done this time around? And we’re close to the end of our time. Are we looking at a really, really tough battle?

DAVID JOHN: I’m afraid that at this point, with this Congress, getting the approval for resolution on motherhood, morality and the flag would be a difficult thing to do.

NANCY ALTMAN: If I could jump in, I was Alan Greenspan’s assistant on that Greenspan commission that resulted in the ’83 amendments.

The difference then was everyone agreed that the program was fundamentally sound and we shouldn’t be talking about private accounts and other kinds of things. And a compromise was able to be achieved. Today, we don’t have agreement on the basic facts.

I think that David and I could work out an agreement, because we agree on the facts. But the — and the facts are that the program is fundamentally sound, it’s well-structured, it stood the test of time. We need to keep it that way.

RAY SUAREZ: But one of the trustees say today during the release of the report, “Every day, every year that passes further constrains our option.”

This gets harder to fix.

DAVID JOHN: Oh, much, much harder, because the — if are you going to make changes in benefits, if are you going to make changes in the retirement age or something along that line, you have got to give people plenty of advance notice that this is going to happen.

Every year that we wait, it limits us to just raising taxes, and that’s really not necessarily a good move.

RAY SUAREZ: David John and Nancy Altman, thank you both.

NANCY ALTMAN: Thank you so much.