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The four benchmark years mentioned in this analysis of the long-term solvency of the Social Security retirement program have been identified in the 2004 intermediate forecast made by the Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance trust funds. These specific dates are discussed here because they have been, in some instances, used deceptively by reformers.
CONTENTS --- COMMENT AND COUNTER-COMMENT
[X] 1. The Year 2008
[X] 2. The Year 2018
[X] 3. The Year 2025
[X] 4. The Year 2042 (or 2052)
1. THE YEAR 2008
COMMENT - In only three years, Social Security will start feeling the impact of the early retirement of some World War II baby boomers.
COUNTER-COMMENT [In 2008, the surplus may reach $2.1 trillion. (2000 report)] - WW-II baby boomers born in 1946 will reach age 62 in 2008, and some of these boomers may choose to retire early. The financial impact of these early retiring boomers on the Trust Fund will be very modest. However, highlighting the symbolic year 2008 is a tactic used by those reformers who like to point to a pending Social Security "crisis".
2. THE YEAR 2018
COMMENT - In 2018, the Old-Age and Survivors Insurance (OASI)
Trust Fund is forecasted to pay out more than it collects in payroll taxes. After 2018 the OASI Trust Fund will head down hill toward bankruptcy as it cashes in its Treasury bonds. To obtain the funds to pay off these bonds the Congress must either raise
taxes or cut benefits. "The Social Security system faces rising gaps between revenues and promised benefits starting in 2017 and an exhaustion of trust funds assets in 2041." [From: "Reeling pension funds are a Social Security warning", column by Michael
Barone in The Columbus Dispatch, 6/10/05. The years 2017 & 2041 cited by Barone came from the 2005 Trustees' report.]
COUNTER-COMMENT [In 2018, the surplus may reach $3.0 trillion. (2000 report)] - The Social Security Trustee's 2004 intermediate forecast does show payroll tax income and the cost of OASI benefits crossing over in 2018. The intermediate forecast also shows interest income to the trust fund to be about $200 billion per year in 2018. The Trust Fund will NOT start shrinking and it will NOT start cashing in its bonds. During 2019, the fund will grow by about $185 billion rather than $200 billion per year ($15 billion lower). In each successive year, the intermediate forecast shows the OASI Trust Fund will be buying fewer new bonds than before. To date, the intermediate forecast has not attempted to consider the unknown economic impact of the post-world-oil-production-peak period.
3. THE YEAR 2025
COMMENT - In about 2025, the Social Security
Trust Fund surplus will reach its peak and start its rapid decline toward bankruptcy. During the 2025-2042 period, the Trust Fund will be cashing in its Treasury bonds and, as a result, the Federal Government will need to either raise taxes to pay for the
bonds or cut retirement benefits.
COUNTER-COMMENT [In 2025, the surplus may reach $3.5 trillion. (Personal extrapolation)] Following 2025, the OASI Trust Fund will be systematically using up its surplus to help pay benefits. That has been the Trust Fund's strategic plan for decades. This plan called for the trust fund to first build a nest-egg and then to use this surplus to get through the demographic bulge of the WW-II baby boomers.
While the two options available to Congress are to raise taxes or cut benefits, there is an obvious third option---resell the cashed-in Social Security bonds to someone else. Each year hundreds of billions of dollars in old Treasury bonds are "rolled over" to new owners. As the year 2042 approaches, the Social Security cash-in rate is projected to reach about $200 billion per year.
The current gross public debt today is some $7.8 trillion ($7,800 billion) and growing at the rate of $600 billion per year, due to overspending in the general operating fund. In 2004, the operating fund deficit caused about $400 billion of new bonds to be sold on the private market along with the usual roll-over of old bonds. If, in the period before 2042, Congress were to start balancing its operating fund budget (stop the growth of the gross public debt), the rolling over of old Social-Security bonds at the rate of $200 billion per year into the private market would have a smaller overall economic impact than Congress's over-spending in year 2004.
4. THE YEAR 2042 (OR 2052)
COMMENT - After the year 2042, the Social Security surplus will be all spent and the system will be bankrupt.
COUNTER-COMMENT [The 2004 OASI Trustee's intermediate projection forecasts the surplus to be exhausted in 2042. However, the congressional Budget Office has forecasted a zero-balance date of 2052.] Using the Trustee's forecast as the most realistic, the Trust Fund will still be receiving payroll-tax income that is large enough to pay about 70% of normal retirement benefits. In 2042 purchasing power, this forecasted 70% will be larger than the amount being paid out to retirees today. So, these retirees are not facing catastrophe, even if Congress does not make adjustments and the forecast turns out to be correct. None-the-less, a prudent response would be to make small changes now, rather than doing nothing until major changes are required later.
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Address:
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This page last updated: August 6, 2005