Social Security Is in Far Worse Shape Than You Think

For years, politicians and policymakers have reassured the American public that the Social Security system, which sends monthly checks out to 53 million beneficiaries, is safely solvent -- and will be for decades to come. But federal spending and income data from the Treasury Department reveal that the Social Security program is already deep in the red, with outlays exceeding payroll tax revenues by $76 billion in 2010 alone.

This stunning shortfall calls into question the rosy fiscal forecasts made by the Social Security Administration (SSA) about the program's future solvency.

The annual report of the Social Security Trustees, published in August 2010, forecast that the primary Social Security program, the Old Age and Survivors Insurance Trust Fund (OASI), would not exceed its tax receipts until 2018. Unfortunately, it happened in fiscal 2010, which ended in October. That year's outlays for the OASI fund were about $580 billion, while receipts came to only $540 billion -- a whopping $40 billion shortfall.

Add in the deficit from the second Social Security fund, Disability Insurance (DI), and the gap between total SSA outlays ($707 billion in 2010, according to the Treasury) and tax receipts ($631 billion) grows to $76 billion -- more than 10% of the program's expenses.

Short-Term Estimates Were Way Off the Mark


The SSA trustees had estimated a $41 billion deficit (excluding interest income), but the final deficit came to $76 billion -- almost twice what they had guessed. Just as troubling, their estimate for total SSA income in 2010 (which included both Social Security payroll taxes and interest paid by the Treasury on the Social Security Trust Funds) was $791 billion -- a number that overshot the actual total income of $741 billion (tax receipts of $631 billion plus interest income of about $110 billion) by $50 billion.

That the trustees could miss estimates only a few months into the future by such huge margins calls into question the accuracy of their long-term projections, which are stated in the report:
"Social Security expenditures are expected to exceed tax receipts this year for the first time since 1983. The projected deficit of $41 billion this year (excluding interest income) is attributable to the recession. This deficit is expected to shrink substantially for 2011 and to return to small surpluses for years 2012-2014 due to the improving economy. After 2014 deficits are expected to grow rapidly as the baby boom generation's retirement causes the number of beneficiaries to grow substantially more rapidly than the number of covered workers. The annual deficits will be made up by redeeming trust fund assets in amounts less than interest earnings through 2024, and then by redeeming trust fund assets until reserves are exhausted in 2037."

SSA's estimate for total income in 2011 is $855 billion -- fully $114 billion more than the program's actual income in 2010 ($741 billion). With employment stagnant, is a 15% jump in payroll taxes remotely plausible?

Payroll Taxes Won't Bounce Back That Fast


For context, let's look at what happened to Social Security receipts in 2009, a recession year, and 2010, a year of modest economic recovery.

According to the SSA, the system's income for 2009 was $807 billion ($698.2 billion in the OASI and $109.3 billion in the DI). Income in 2010 was $741 billion -- a massive one-year decline of $66 billion.

Given the magnitude of this recessionary drop in income, it's difficult to place much faith in the trustees' extremely optimistic forecast of double-digit payroll tax increases in 2011. As I reported on DailyFinance in December, job gains have been exceedingly modest in the 154 million-worker U.S. economy, and many of those jobs were temporary or part-time. Factor in lower incomes for the self-employed, and it's little wonder that payroll tax receipts have been flat.

The trustees' forecast of Social Security's outlays in 2010 were much more accurate than their estimates of income: The report anticipated outlays of $714 billion, and the final total came in at $707 billion. The report's estimate of 2011 outlays is $742 billion, an increase of $35 billion, which is higher than the 3.5% ($23.8 billion) jump in 2010 costs over 2009 outlays.

That $742 billion estimate for 2011 costs is almost exactly equal to 2010 income of $741 billion. That means if outlays were to rise even a bit more than expected, or income were to decline from 2010 totals, Social Security would hit a deficit that the trustees aren't expecting to occur until 2025. Given that shortfalls have already reached levels the SSA hadn't expected until 2018, it's not that big a leap to conclude that the system's projections are woefully out of alignment with the nation's new realities.

Retiring on Borrowed Time


What do these potentially large, structural deficits in Social Security mean? It's simple: The Treasury will have to borrow more money on the global bond market to fill the gap, increasing pressure on an already unprecedented federal deficit.

Given the above data, it's unsurprising to find that the Treasury needed to borrow money to pay Social Security benefits in 15 out of the last 25 months. When the cost of monthly benefit payments exceeds the Social Security tax revenues, then the Treasury has to fill the gap with borrowed money.

Policymakers and citizens alike will need to have a realistic grasp of these Social Security deficits if they're to make the tough decisions about taxes and spending that lie ahead.

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bassmaster7773

social security would have been fine,,, if democrates,, didnt borrow from it,,,, then they turned the monies into the general fund,,, then they opened it up ti immagrants who never put a penny into it,,,,,,
did you know,,, that now,,, all it takes is to be 60 yrs old,,, maybe have back surgery about 10 years ago,,,, and start seeing a chiropractor for aches after playing golf,,,, to start a file,,, see a lawyer,,,, they will get you all into social security disability,,, within a year,,,,,

July 13 2011 at 12:57 AM Report abuse rate up rate down Reply
derffinch

Social Security is without a doubt the biggest Ponzi scheme of all time. The solution is quite simple. Take it out of the hands of the incompetent, & allow the recipients themselves to have control over their money. It should be treated the same way as if individuals elected to set up a 401K. With each paycheck, an individual would direct his Social Security contribution into a fund of his/her choice. For example, the money could be directed into a large cap, mid-cap or small cap index fund, an international equity fund, a bond fund, or any other fund of ones choosing. This of course would be optional, people could still stay with the system the way it is now.

The thing to remember is that if an individual is in their 20's, 30's or even early 40's, they would still have at least 20 - 40 years of making contributions into equity funds if they wish. Over any 20 year period, the Dow, Nasdaq or S&P has always been higher at the end of the period.

The problem is the politicians & unions are brainwashing the public into thinking that it is foolish to risk your future Social Security benefits by investing them in the market. If that were really the case, then I would like someone to explain why people are encouraged to contribute to 401K's.

To sum it up, I am simply saying that if a 25 year old directed his SS contributions to various equity funds for say 37 years, when he/she reached the age of 62, he/she would have without a doubt a fortune accumulated that would dwarf any benefits he/she would receive over a lifetime with the system the way it operates currently.

July 09 2011 at 12:44 AM Report abuse rate up rate down Reply
Frediano

Given the above data, it's unsurprising to find that the Treasury needed to borrow money to pay Social Security benefits in 15 out of the last 25 months. When the cost of monthly benefit payments exceeds the Social Security tax revenues, then the Treasury has to fill the gap with borrowed money.

Of course it's not a lie; that is what must be done, in order to convert a 'special non-markletable bond' that is owed to oneself into an actual asset. A previous generation was surcharge taxed to create a surplus, that surplus was imeediately spent years ago as soon as it was taxed, and today, a new generation must be taxed a second time to 'redeem' that same 'asset' -- a special/bond IOU by the government to itself.

That is why statements like 'the SS Trust fund is solvent until 2037' are completely bogus. SS is already underwater. What that 2037 date means is, the date at which the current generation will have been overtaxed to pay for the same 'asset' twice. It is the date in the future when the new generation will have finally retired the last of those 'bonds' that earlier generations long ago spent.

Can anyone explain why it would be necessary to tax a second generation for the same 'asset' created by the surcharge taxation of an earlier generation, if that 'asset' was really an 'asset?' Moynihan could, which is why, in the 70s, he testified on the floor of the Senate, 'God help us when they realize what we did to them."

And now, to make the bad news go away, we can put our head in the sand and scream "THIS SENTENCE IS A COMPLETE LIE"...

The same folks screaming 'DON"T PRIVATIZE SS!" for years are still ignortant of the basic accounting facts; an asset based on debt or borrowing is not an asset if the borrower and lender are the same entity! Otherwise, we could all do what the government did: spend all of our assets, replace them with an IOU to ourselves, and then show up at retirement with a drawer full of IOUs to ourselves. We would pay those off the only way possible -- the same way that our brilliant government is going to try to pay them off; by attempting to tax our children a second time to come up with the cash to redeem those IOUs.

Brilliant. And for this brilliance, some suggest handing over stewardship of even more of the economies to these idiots, even as they insist on referring to them as an it. It's the economies, stupid, but if we can't see that, then there is no end to what we can't see..

June 27 2011 at 1:28 PM Report abuse rate up rate down Reply
bjonb67

THIS SENTENCE IS A COMPLETE LIE:" Given the above data, it's unsurprising to find that the Treasury needed to borrow money to pay Social Security benefits in 15 out of the last 25 months. When the cost of monthly benefit payments exceeds the Social Security tax revenues, then the Treasury has to fill the gap with borrowed money."
THE FACT IS THAT : Money has to be borrowed to pay back the money that the Treasury has borrowed from SS over many years. They need to borrow to pay a debt ;not to support Social Security.
SOLUTION: Remove the Payroll cap; reinstate the payroll tax 2% give away and increase the payroll tax rate slightly. Also consider applying a small rate at tax time to unearned income. Let's get real folks, it is a revenue problem; not a spending problem.

See full article from DailyFinance: http://srph.it/g7Wmi5

May 05 2011 at 7:35 PM Report abuse +1 rate up rate down Reply
bjonb67

This text is a complete lie: Given the above data, it's unsurprising to find that the Treasury needed to borrow money to pay Social Security benefits in 15 out of the last 25 months. When the cost of monthly benefit payments exceeds the Social Security tax revenues, then the Treasury has to fill the gap with borrowed money.

Money has to be borrowed to pay back the money that the Treasury has borrowed from SS over many years. They need to borrow to pay a debt not to support Social Security.

Remove the Payroll cap; reinstate the payroll tax 2% give away and increase the payroll tax rate slightly. Also consider applying a small rate at tax time to unearned income.

Let's get real folks, it is a revenue problem; not a spending problem.



See full article from DailyFinance: http://srph.it/g7Wmi5

May 05 2011 at 7:31 PM Report abuse rate up rate down Reply
Bloom-mother

I know 2 people that are on Social Security for a supposed disability, they spend their days in bars, dancing, drinking and even go hunting. There are two many people on SSI that are just abusing the system. Hey, Idea for you, start drug testing this supposed disabled people.

April 26 2011 at 9:30 AM Report abuse rate up rate down Reply
bubblees

Does Obama, have to worry about paying his bill, or putting food on the table.
He uses the Air force one plane that we are paying for his travels, plays golf.
Michell goes on trips that we pay for. With all that money his is useing for his
activties he can give us seniors a cola. We have to worry about our bill, medication or Doctors visits. I donot go out to eat I have not been on a vacation in lord knows. I stay in my house and keep myself busy. While they travel all over the world on our money. I know one thing I will not vote for him in 2012. HE AND HIS WIFE ARE OUT.

March 28 2011 at 7:25 PM Report abuse +1 rate up rate down Reply
a1n2d3r4t5

This proves that large government is not the answer to our problems. They have been in charge of the national budget and look where that is now. They have been in charge of social security and look where that is now. What if they let us keep our money instead of taking it out our checks and let us make our own choices for retirement and how we save our money? If you run out when you get older then you either go back to work or make smarter choices with your money. Where in the Constitution does it say that the government is to be in charge of programs like SS? They obviously should not. But hey what does a college kid know anyways?

March 28 2011 at 12:23 AM Report abuse rate up rate down Reply
corrnurse

What I think is outrageous, is that social security wwitholding comes out of retirees' benefit checks!! I receive ss benefits, but an ss benefit amount is taken out of my monthly check and returned to the kitty??

March 27 2011 at 12:29 PM Report abuse rate up rate down Reply
Sandra Lynn

I know why social security as it is named is about bankrupt. My mother, who is 84, recently had pneumonia & a heart attack. She was in an assisted living facility which was totally private pay. When she went into the hospital the first time they couldn't wait to discharge her even though her daughter & granddaughters knew she was not ready to be discharged. Six days later she was back in the hospital with renal failure & severely dehydrated. Now she has been in a nursing home for a little over a month. As we were informed she would be re-sponsible for $141.00 per day over & above what Medicare pays, which is over $4200.00 a month. After asking many questions to the woman in accounting, I asked how much is Medicare paying if we're paying $4200.00? She answered, $12,862.83!!!
I just gasped. What? My father worked until he was 81 yrs. old contributing to both social security & medicare, as well as working a civil service job for 30 yrs. She is in a semi-private room & there are about 250 rooms, which is a small nursing home. There are several of these facilities in Pensacola some much larger. If you do the math on one individual alone you can see why social security is in such bad shape!! Oh, by the way, soon the private pay for my mother will be $5800.00 a month along with the Medicare payments. As I heard someone say once, "it's cheaper to die". So very sad. My husband & I are on SS now & frightened that we won't have it much longer & then what?

February 27 2011 at 12:33 PM Report abuse rate up rate down Reply