Studio shot of social security card and banknotes
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On Monday, the Social Security Trustees published its annual Trustees Report on the health of the Social Security system. The bottom line has changed very little since last year's report, and the trustees still expect the Trust Funds to empty in 2033. Once the Trust Funds empty, the program will only be able to pay around 77 percent of its scheduled benefits.

Still, while the trustees maintain their overall projection for the program, its underlying financials continue to crumble.

For one thing, the program's 75-year actuarial deficit increased to 2.88 percent of payroll, up from 2.72 percent last year. For another, the retirement-related Trust Fund -- when considered on its own -- is on the path toward emptying a year sooner than last year's projections. The table below shows the details:

Social Security
Trust Fund
2014 Trustees
Report
2013 Trustees
Report
Retirement Trust Fund Empties in 2034 Empties in 2035
Disability Trust Fund Empties in 2016 Empties in 2016
Combined Trust Funds Empties in 2033 Empties in 2033
Source: 2014 Social Security Trustees Report.

What's Driving This Decline?

There are at least four key drivers behind Social Security's weakening condition:

1: Falling labor force participation rate. This metric measures the percentage of the U.S. population age 16 and older either working or actively looking for work. Unfortunately, as the chart below from the Bureau of Labor Statistics shows, that measure has dropped substantially this century.

Source: Bureau of Labor Statistics
Social Security is primarily financed by payroll taxes. The fewer people working (or even looking for work), the smaller the potential wage base to support the program.

2: The relentless rise in the disability rate. The two charts below show the Congressional Budget Office's current and projected disability rates by age, the first for males and the second for females. The disability rates have risen relentlessly since around 1990, and the trends show no sign of stopping.

Source: Congressional Budget Office
Source: Congressional Budget Office

This is a double whammy for Social Security. For one part, the disabled often qualify for Social Security Disability benefits. The more people who are on Social Security Disability, the bigger the strain becomes on that part of the combined Trust Fund. For the other part, people collecting Social Security Disability rarely earn much (if any) income. People who aren't earning income aren't paying into the Social Security system.

3: The aging population. Longevity is a wonderful thing (especially for those of us who aren't getting any younger). Still, the longer people live and the more people who survive into their retirement years, the higher the cost of Social Security will be. The chart below from the Congressional Budget Office shows how the population of those ages 65 and older is expected to grow -- both on its own and as a percentage of the overall U.S. population.

Source: Congressional Budget Office
Once you stop working in your retirement, you stop paying into Social Security, and instead, you start collecting. Additionally, the longer you live, the higher the total amount the system needs to pay to cover your benefit.

4: Low interest rates. While most of Social Security's income comes from payroll taxes, it also makes money from the interest earned on the Trust Funds. Those Trust Funds are invested in special Treasury bonds, and like any Treasury bond, they mature. In our current low-interest-rate environment, the Social Security Trust Funds are forced to buy lower-interest bonds to replace higher-interest ones that mature.

The chart below shows the billions of dollars in annual interest lost since 2010 to lower interest rates:

Author's calculations based on data from the Social Security Administration.
Social Security is already spending more in benefits than it takes in as payroll tax revenue, and interest is the program's next largest source of income. The longer low interest rates go on, the larger the negative impact those low rates have on the Social Security Trust Fund's solvency.

What Can You Do?

For those four key reasons, Social Security is, and will continue to be, in trouble. With the Trust Funds expected to empty in 2033, you need to prepare. Your most prudent course is to invest as though you'll need to cover the gap between your expected Social Security benefit and what the program anticipates being able to pay.

The sooner you get started, the easier and cheaper it is to get there. With around 19 years before the Trust Funds are expected to empty, you've still got time to build a reasonable plan, but the longer you wait, the tougher it gets. So get moving now.

Chuck Saletta is a Motley Fool contributor. For more on ensuring a comfortable retirement for you and your family, see our new free report in which Motley Fool retirement experts give their insight on a simple strategy to take advantage of a little-known IRS rule to boost your retirement income.

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196 Comments

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robbhoek

If president LB Johnson had not moved the Social Security funds into a "general" fund the SS contributions wit hh he compounded interest accrued over the years since its inception would have provided a retirement income for everyone who contributed into it. However, since the transfer into a general fund our "honorable" elected government officials from the president on down have helped themself to it as if it were their own. Many never paid back any of it or even paid any interest. Over the years the ceiling of Soc Sec taxed money taken from each individual's income has increased to over $125,000.00 annually. The shame of it all is the fact that now even illegal aliens and non-US citizens have the riight to dip into it without having contributed one penny. Talking about the rape of a nation.

August 01 2014 at 2:21 AM Report abuse +1 rate up rate down Reply
backpkr580

If congress quits borrowing from it ... pay into it like the rest of us ... quit giving it to people who havent paid into it then there wouldnt be a problem with it

July 31 2014 at 11:23 PM Report abuse +1 rate up rate down Reply
slop9124

If we can spend trillions of dollars helping foriegn countries and training their useless armies, why can't we see to it that social security never goes broke. Our inferstructure is falling apart and we send billions to the rest of the world to fix up or build new stuff for them. America needs to take care of our homeland and let the rest of the world start doing for themselves. My children are paying into social security and the fund expects to empty out just as they will reach the age of retirement. They have more debt than I ever did and only because the only way they can survive is to keep chargeing things they need. This country is in trouble and the fat cats in Congress don't seem to care because they have plenty stahed away. Tell them to get on the ball and stop and think about how bad it's getting and quit fighting among each other.........

July 31 2014 at 10:53 PM Report abuse +2 rate up rate down Reply
J Grace

How many people receive social security benefits and have paid either little or possibly even nothing into the system. For instance, a spouse may work full time until they reach 66 and retire and begin collecting their full share of social security. But even if their spouse did not work a lick and therefore contributed nothing, that spouse can collect one-half of the retired spouses social security payment? So then the system is paying out 150% of what they collected. And as for illegals in the country, they are also claiming and collecting social security benefits and even disability beneifts. Throw in food stamps, rent assistance and some free medical and viola, it's no wonder the whole government system is headed to the red zone. How to change it? Simple. You don't pay into the system, you don't get a check. And as for moving the limits of the tax higher, start by moving the maximum income to be taxed for social security to $125K, next year. Then in 5 years, move it to $135K. Then in fifteen years, move it to $150K. And in 25 years, move it to $175K. These moves will than allow collection of sufficient funds to meet payout demands for the next 60 years. But do the politicians have the guts to put that plan in place? Nope. They'll just continue with the BS, watch.

July 31 2014 at 10:51 PM Report abuse +1 rate up rate down Reply
1 reply to J Grace's comment
julihunter

Why wouldn't a spouse get half? It's not like the person retiring is going to be paid the same amount as they were if they were working, and 2 people can't live off of what the average person receives for SSI. Just because the spouse may have been a full time mother, charity worker, and helped in other ways doesn't mean that when someone retire they should live in poverty. A lot of people on assistance do work full time, but morons that don't want a pay increase are the first ones to whine about government assistance. I was fortunate enough to work full time for 32 years before I became disabled, and I always paid into SSI, but I can barely make ends meet with the amount I get. Thankfully, it's just enough that I need no public assistance. I don't think illegals should be entitled to any benefits of SSI. Not all people get medical assitance. I didn't for two years because I didn't qualify for Medicare for 2 years and my spend down for Medicaid was half of what I was making every month. I didn't get free medical. Please check your facts before you so casually dismiss the poor and unfortunate. I'm guessing you'll be sleeping in a nice cozy bed tonight, what about the families on the street or in homeless shelters because of abuse? Do you really feel good about yourself by putting these people down?

August 01 2014 at 12:54 AM Report abuse +1 rate up rate down Reply
holliej51

remove the cap and let the rich pay there fair share. problem solved

July 31 2014 at 10:38 PM Report abuse +2 rate up rate down Reply
haynonnie

If the politicians running the country would stop sending taxpayers money to countries all over the globe , and stop letting people who are illegally here use up taxpayers money , ( notice I said taxpayers) not government, then social security would be solvent.

July 31 2014 at 10:15 PM Report abuse +3 rate up rate down Reply
goodolddad321

Those of us that are 65 or older will be how old in 2033? More likely dead and gone. What this is not sayinh is how many trillion are still in the fund and why no one is paying back what was borrowed.

July 31 2014 at 9:35 PM Report abuse +2 rate up rate down Reply
Ronnie

WOW!!! Our leaders keep telling us the economy is recovering and unemployment is dropping......Little do they know or admit!!!!!!!!

July 31 2014 at 9:07 PM Report abuse rate up rate down Reply
Mike

I guess the best thing is to try to take care of yourself in retirement planning and if SS is there, it is just a bonus. It is a ponzi scheme at best...eventually more people taking out than putting in. Blows.

July 31 2014 at 8:16 PM Report abuse rate up rate down Reply
fred

But just before he went to jail, Bernie said social scamurity was solvent............

July 31 2014 at 7:44 PM Report abuse rate up rate down Reply