It is quite amazing to me how the image of Republicans (see Ryan Budget Plan) can be painted as throwing Grandma and Grandpa off a cliff simply because they point out the inherent long-term fiscal flaws in Social Security. Actually, if you honestly look at the current Obama budget proposal, and Obama’s demand for another payroll tax cut extension, the opposite is true.
The funding mechanism for Social Security payments is the very Payroll Tax that Obama insists be reduced. I wonder if people actually realize this or do they confuse the “Payroll tax cut” with income taxes and think that income taxes are being reduced?
House-Senate talks on renewing a payroll tax cut that delivers about $20 a week to the average worker yielded a tentative agreement on Tuesday, with lawmakers planning to unveil the pact Wednesday and sending the measure to President Barack Obama as early as this week. Under the outlines of the emerging agreement, a 2 percentage-point cut in the Social Security payroll tax would be extended through the end of the year, with the nearly $100 billion cost added to the deficit. This specifically reduces the amount of money going into the Social Security fund.
In last year’s Trustees Report, the Social Security Administration warned that the program’s trust fund was likely to run out of money in 2036, leading to deep cuts in benefits. If that weren’t bad enough for anyone expecting to be alive then, a more recent projection from the Congressional Budget Office paints a much worse picture.
This year’s CBO report forecasts that by the end of this decade, the combined Social Security Old Age and Disability Trust Funds will be about $800 billion smaller than last year’s SSA projections. That’s a very substantial drop — and a sign that this year’s Trustees Report will likely bring another downward revision to the year it expects those Trust Funds to dry up and benefits to be cut.
With several hundred billion in projected 2020 dollars vanishing in less than a year, it wouldn’t be surprising to see the 2012 Trustees Report lopping another year or two off the projected run-out-of-cash date. And remember, when the Trust Fund runs out of cash, benefit payments are expected to fall, too.
If you’re expecting to retire and are planning to rely significantly on Social Security, this is bad news indeed. Quite simply, it means time is becoming your enemy on both sides. On one side, you’re a year closer to your anticipated retirement date. On the other side, the day you can no longer count on your full anticipated Social Security benefit keeps getting pulled closer, too. Put the two together, and the message gets crystal clear: Save more for your own retirement, or face a scary — and rapidly approaching — future.
Assume, for the sake of discussion, that Social Security’s 2012 projection moves the Trust Fund expiration date closer by two years to 2034. That’s still 22 years away — enough time to do something about it, but approaching the point where it gets significantly tougher to catch up.
As of January 2012, the average Social Security check for a retired worker was around $1,229 per month. When the Trust Fund is gone, that amount is expected to fall by about a quarter. That works out to a shortfall of around $307.25 per month.
The bottom line is simple: Social Security’s Trust Fund is on borrowed time.
