This year the Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance (OASDI) Trust Funds extend the solvency of the combined Social Security and Disability Trust Funds from last year’s report by three years to the year 2032. This favorable news is due, in large part, to the strength of the economy.

Based on the new report, politicians and the media are portraying the current Social Security program as stronger than it was just one year ago, but that is a small part of the story.

Source: The Board of Trustees, Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds, "1998 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds," Washington, DC, April 28, 1998, Table II.F13., p. 108 and The Board of Trustees, Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds, "1997 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds," Washington, DC, April 24, 1997, Table II.F13., p. 110.

Social Security is a pay-as-you-go system where today’s workers pay the benefits of today’s retirees through payroll taxes. The report also shows that, as the number of workers per retiree declines, payroll tax contributions into the Social Security system will soon be outstripped by benefits paid to retirees. Once this occurs, the system will begin losing money at a faster rate than previously predicted (See Figure 1) due to future demographic changes.

Note: Actuarial balance values are based on the intermediate alternative II assumptions for 1991-98 and alternative II-B assumptions for 1988-90 as reported in the Trustees' reports issued in years 1988-98.

Source: The Board of Trustees, Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds, "1998 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds," Washington, DC, April 28, 1998, Table III.D1., p. 193.

The actual unfunded liability—the amount of promised benefits that cannot be paid by payroll taxes—of the Social Security program remains almost unchanged from one year ago, even though predicted insolvency has been delayed for three years. Figure 2 illustrates that the program’s unfunded liabilities have increased steadily this decade. Despite today’s strong economy, the unfunded liability level has not been significantly reduced in the last year.

The program’s Trustees credit favorable economic conditions as the single-most important factor attributable to the slight improvement in the program’s solvency. Should we face a weakened economy, however, the programs could face insolvency as early as the year 2022.

But even with continued strong growth, it won’t change the fact that today’s workers pay today’s Social Security benefits, and because there are fewer workers per retiree, the current Social Security system is unsustainable in its current form. Lawmakers in Congress have begun developing proposals to reform the Social Security system. The question is, will these proposals adequately provide for the retirement security for seniors and future taxpayers?

Proposals that rely on the same old fixes of increasing the retirement age, increasing payroll taxes, and cutting benefits will only prolong the inevitable insolvency of the system. These measures have been repeatedly attempted and failed in the past. Americans deserve better.

Innovative solutions, such as allowing for individually-owned personal retirement accounts, offer the best hope for a permanent solution. These proposals would allow workers to divert their Social Security payroll taxes, or a portion of them, into personal retirement accounts. These plans include provisions to continue providing Social Security benefits for those who currently rely on Social Security or are already vested in the system and, in some cases, would provide a guaranteed minimum monthly benefit. In this way, dignified retirements as well as economic opportunity would be available to all workers.

The extension of the Social Security program’s insolvency date gives us no cause for celebration. While the economy is helping to delay the ultimate demise of the Social Security system, the crisis continues nonetheless.

For additional information, contact Naomi Lopez at (415) 989-0833.