News About Social Security Trust Fund Shortfall Only Gets Worse

United States FlagLast week's report by the Social Security Administration Trustees confirmed that the program's finances are still falling apart. Indeed, as a recent Congressional Budget Office projection suggested would happen, things are apparently getting worse at an ever-faster pace.

The Trustees' Report projected that the Trust Funds would be bankrupt by 2033, three years earlier than predicted in 2011. Unfortunately, that change should not have come as a surprise. A review of the past five Trustee reports shows that to be an alarming -- but recurring -- event:

Trustee Report Year

Estimated "Run Dry" Date

2012

2033

2011

2036

2010

2037

2009

2037

2008

2041

Source: Social Security Administration.

Over the past five reports, eight years have been knocked off the timeline projecting the emptying of Social Security's Trust Fund. In a very real sense, it's as if 12 years have been lost over that period -- eight years due to the program's failing finances and four due to the inevitable march of time.

Social security chartIt's Not Stabilizing

In fact, there are signs that Social Security's condition may still be getting worse. That same Trustees' report cautioned that the retirement of the baby boomers, the smaller sizes of the generations following them, and our longer lives in general are working together to make the program's financial outlook bleak.

Combine those demographic realities with Social Security's actuarial life expectancy table, and the picture becomes quite ugly for an average man who is younger than 60 or a woman younger than 64 today. Statistically speaking, those folks are expected to still be around when the Trust Fund tank hits empty, and are thus on track to see their Social Security benefits cut by about a quarter.

Even more ominously, remember that people can take Social Security benefits as early as age 62. The Trust Fund expiration date in this year's Trustees' Report means that for the first time since this collapse began, significant numbers of current Social Security recipients are expected to see their payments slashed.

This probably explains why even the AARP recently said it was willing to consider changes to Social Security. The problems have become so large that even many of AARP's current members -- not just its prospective ones -- can expect to see their benefits cut if nothing is done to fix the system.

21 Years to Plan

If there's a bright side to Social Security's collapse, it's that it's happening in such plain sight and with such a long lead time that you have the opportunity to prepare. The ugly reality at this point, though, is that you're rapidly running out of time to protect yourself from the Trust Fund's inevitable collapse. If you don't start planning now, it quickly gets progressively much harder to cover the gap.

Based on the Social Security Administration's projections that benefits will be reduced by about a quarter, a typical household can expect to see its annual benefit cut by around $5,000. Using the 4% rule for retirement withdrawals as a guideline, covering that $5,000-per-year gap from savings will require a nest egg of around $125,000. The table below shows the monthly savings it will take to get there, depending on when you start and the rate of return you earn on your money:

Years to Go

8%
Annual
Returns

6%
Annual
Returns

4%
Annual
Returns

2%
Annual
Returns

21

$192.20

$248.57

$317.31

$399.54

20

$212.22

$270.54

$340.81

$424.02

15

$361.23

$429.82

$507.94

$596.05

10

$683.26

$762.76

$848.90

$941.83

5

$1,701.22

$1,791.60

$1,885.40

$1,982.64

Source: Author's calculations.

It's tough enough now to come up with that kind of money, but look how much tougher it gets if you wait. And remember -- this is just the additional savings it'll take to cover Social Security's expected shortfall after the Trust Fund is drained. Even before that collapse happens, Social Security only covers around 40% of a typical person's pre-retirement income. If you want to live on any more than that, you'll have to have another source of money.


Generally speaking, those other sources of money come from either your savings or the vanishing breed of retirement benefits known as pensions. Unless you're one of the few who is well-covered by other sources of income, now may be your last chance to start funding any semblance of a comfortable retirement.



Motley Fool contributor Chuck Saletta welcomes your comments.

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148 Comments

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spiveygordon

It seem proper if SSA would offer existing recipients lump sum buyout options. Assuming this would be to much like right.

November 04 2013 at 11:48 AM Report abuse rate up rate down Reply
smaselli12

Just like the national debt, to address the problem, politicians would have to admit they have promised too much................won't happen, they just don't have the integrity.

September 20 2012 at 9:53 PM Report abuse rate up rate down Reply
b.f.k. sr

the best answer is the one that refressives refuse to address because it would help oboma. JOBS, JOBS.

May 23 2012 at 12:20 AM Report abuse rate up rate down Reply
BETHEL FFL

And the lock box is empty too. Strange how so many polticians there wives and children do so well.
We would be better off if we selected our leaders at random and with term limits.

May 23 2012 at 12:18 AM Report abuse rate up rate down Reply
vlady1000

Geeze, every year they run the number, the run dry dates moves about years closer. At that rate, when they run it in 2017, it will be dry by 2018.

May 22 2012 at 11:45 PM Report abuse rate up rate down Reply
abourge458

Ooh ohh I got the easy solution.........
Ban manufacture of ALL condoms and other contraceptives and abortions, and give away Viagra free.
In 2033 ( 21 years from now,) there will be a slew of workers to pay in, uhh..If they can find a job?

May 22 2012 at 11:44 PM Report abuse rate up rate down Reply
retsubcpo

There is no trust fund, their never was a trust fund. This entire system is exactly the same as the scam Bernie Maddoff ran and has exactly the same amout of real money in it that he had. The only difference is that the Federal Government diverets money from the general fund to pay off the T bill IOU's that make up the entire scam called a "trust fund". This requres that the feds either borrow or print 100% of this shortfall their isn't one cent of surplus in the general fund. They stole and spent the 2.5 trillion yrs ago. If any priviate citizen attempted to run a retirement program exactly the same way the lying federal government has run SS, they would be in the cell with Madoff. Where do you idiots think he learned how to do this?

May 22 2012 at 11:32 PM Report abuse rate up rate down Reply
SAM

Do you know what really burns me up about this country? We give billions in foreign aid and much of it ... goes to waste. Why not get our wotrthless congress and senate (both parties) to re-route some of that money back into Social Security? The voters should be demanding this!!!

May 22 2012 at 11:13 PM Report abuse +1 rate up rate down Reply
danno

Not only does everbody who applies receives ss benefits but the new con is total disability benefits..with some twenty million plus new immigrants now on the roles there is no intitelment prrogram that can withstand this massive influx of new people...most commiting fraud..and most could care less..

May 22 2012 at 10:58 PM Report abuse -2 rate up rate down Reply
red

SO HOW TIMELY FOR OBAMA TO HAVE THE TAXES THAT SUPPORT SOCIAL SECURITY CUT BY 2.5%.

May 22 2012 at 10:51 PM Report abuse rate up rate down Reply