4 Reasons Not to Panic About Social Security's Future

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Earlier this week, the trustees in charge of the Social Security system released their annual report on the program's condition. The most recent report was much the same as previous ones, as were the reactions that stressed the ongoing challenges that Social Security faces in providing benefits for current and future recipients.

Yet amid the gloomy outlook, there are still reasons for Americans to be hopeful that Social Security's future isn't in jeopardy. Here are four:

1. Simple Fixes Can Extend Endangered Disability Benefits

One of the most alarming headlines from the Social Security Trustees Report was that the trust fund for disability benefits is expected to run out of money within two years. After 2016, payroll tax revenue will no longer be adequate to pay full disability benefits to those receiving them as well as those expected to get them in the future.

Yet given that the Social Security Old Age and Survivors Trust Fund has a much longer sustainable lifespan -- until 2034, according to the latest projections -- the simple fix that could extend full disability benefits is to allocate more payroll taxes toward the disability program. This will have the effect of extending the Disability Trust Fund's solvency at the expense of the trust fund that covers retiree and survivor benefits. But because the disability program is so much smaller, the net impact will be minimal, and the Social Security Trustees kept their combined estimate of 2033 for both trust funds unchanged from last year's levels.

2. Interest Income Is Still Enough to Cover Social Security's Shortfall

Many analysts focus on the coming demographic shift that will put immense pressure on Social Security. For now, though, the Social Security Trust Fund is working the way it was supposed to, and what many don't realize is that the fund's balance grew in the past year.

Specifically, the Old Age and Survivors Trust Fund brought in almost $744 billion in 2013, while paying about $680 billion in benefits. Payroll taxes and other sources of revenue from taxation and the government's general fund weren't enough to cover all of Social Security's liabilities to pay benefits, leaving the program with a gap of about $34 billion. But interest income of $98 billion on the balance in the trust fund was enough to more than bridge that gap. As a result, the trust fund for old age and survivor benefits has $2.67 trillion in assets -- $64 billion more than it had at the end of 2012.

3. This Year's Projections Used More Conservative Assumptions

One thing the trustees have to predict is how fast wages will grow. One complaint in past reports was that the trustees assumed that wages would grow at an average rate of 1.5 percent after adjusting for inflation. That hasn't happened in the latest recovery, as wage growth has been closer to 1 percent.

To reflect that going forward, the trustees reduced their projections for real wage growth to 1.1 percent going forward. That has an immediate impact on payroll tax revenue, but it will also result in the long run in lower benefits for current workers when they retire, lessening the future strain on Social Security if the trend continues.

4. The Worst-Case Scenario Isn't as Bad As Many Fear

There's a common misimpression that when the Social Security Trust Funds run out of money, benefits will stop entirely. But even when trust fund balances reach zero, Social Security will continue to function based on the revenue it takes in through the payroll taxes that workers have withheld from their paychecks and that employers are required to match.

Even after 2033, the Social Security trustees estimate that payroll tax revenue will be sufficient to pay more than three-quarters of current benefit levels, even if lawmakers take no action to remedy the situation. Moreover, even small tweaks could boost that amount, leaving Social Security recipients relatively unscathed.

Don't Panic

Social Security does face some serious challenges, and few people dispute that lawmakers should take action to shore up its financial condition sooner rather than later. But it's important not to exaggerate the potential effects of Social Security's woes on the American public. Knowing the actual impact on your finances in any contingency is important to help you plan better.

Dan Caplinger is a Motley Fool contributing writer. 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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Iowa Democratic Sen. Tom Harkin sponsored legislation that would gradually remove the cap that currently makes only the first $113,700 in wages subject to Social Security taxes. He says it's the only fair thing to do.

He is right. sThe rich have their own private doctors and thus do not need social security. so, they are against raising the cap on income for what they call 'an entitlement' when it is a pension that you and I pay into. Thus it is ahrdly entitlement. But they use this language to make people think that they are getting something for free when they actually pay into the system.

If you make $50,000 a year, you should pay Social Security taxes on every dime you make. Currently, if you make $500,000 a year, you only pay taxes on about the first 20 cents. After that, you don't pay any more Social Security taxes.

All tax breaks for the rich and misery for the disabled and elderly.

As to the system going broke, this is what the one percent want so they can fool you into investing in the rigged stock market.

Three decades ago, 90 percent of the nation's wage earnings were taxed for Social Security; that proportion has now shrunk to 83 percent. And that's made an already regressive tax even more so.

Removing that cap could keep Social Security solvent 30 years beyond what's currently projected.

but the American Enterprise Institute, a for the rich think tank says this is unfair. He argues that if we raise the cap then people will think it unfair and lose confidence in it. Better to let it die.

All taxation on the rich have gone down as they soar to billionaire heights and tell us that the government, they own, is broken.

August 01 2014 at 7:38 PM Report abuse rate up rate down Reply
1 reply to weilunion's comment
Tom Wilson

He is right. sThe rich have their own private doctors and thus do not need social security. *******Considering that the “ Holy Grail” of the lefties like you is that “ they paid into the “ Entitlement programs” and thus are “ entitled”, but the Medicare program continues to be inviolate as a political matter. In other words, if you want to fairly frame the issue as a political question, it would be:
Do you believe it is correct policy to require the poorer demographics to contribute towards the medical care of the more affluent?
How do you think most people would respond if the question were framed that way ?

August 02 2014 at 12:14 PM Report abuse rate up rate down Reply

When my kids were in school, my wife did volunteer work with a woman who constantly complained about "entitlement" programs. The other volunteers were speechless. They told my wife the woman was on full social security disability. She was a Grade-AAA hypocrite!

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

It's all well and good to talk about "entitlements" and "don't touch my fortune", but in fact most people don't save enough for retirement. This can be because many people make poor choices. But it also be caused by bad luck like getting laid off when you are in your 50s or getting a divorce. Or it can be because you worked hard but at low-paying jobs or your employer made you a "contractor" and cut your salary. Or it might be because you were helping to support a sick or troubled family member. There are lots of decent people who depend entirely on Social Security through no fault of their own.

July 31 2014 at 11:18 PM Report abuse +1 rate up rate down Reply
1 reply to Dave's comment

Yes, well the rich believe as Maggie Thatcher did: there is no society only a collection of individuals.

America is a selfish nation both at home and abroad. It would rather see its sick and disabled on the streets or in for profit prisons.

All of FDR's prgrams are being repealed and the corporate demos and the reactionary republicans are to blame.

August 01 2014 at 7:41 PM Report abuse rate up rate down Reply
1 reply to weilunion's comment
Tom Wilson

The Constitution was created based on, and for protection of " individual" liberties. There is no " collectivism"!

August 02 2014 at 2:57 PM Report abuse +1 rate up rate down

The Social Security and Medicare "Trust Funds" should be eliminated because they are an illusion that fools most people. Surprisingly, they could be eliminated with a the stroke of a pen and it would have zero effect on the future of the programs and this explains why.

If I write a check to you, then you have an asset and I have a liability. You can take it to the bank and exchange it for cash. You can then trade the cash for valuable things.

If I write a check to myself, I have both the asset and the liability. I may take that check to the bank but the cash I receive will be offset by a decrease in my bank account balance, no matter how big the check is, I'm no better off.

The "Trust Funds", which are bookkeeping accounts of the federal agencies, have no assets that are not also liabilities of the US Treasury, the "bank account" of the federal government. They are composed of checks written by the federal government to itself. Whether those "Trust Funds" are $100 or $100 trillion makes no difference. The "Treasury Bonds" in the "Trust Funds" are non-marketable and so could not even be sold to China or Japan for cash, they can only be redeemed by the Treasury. All of the money to cash those bonds will come from future taxes or borrowing, there is no cash there now.

This allows two things that are good for the politicians. First, the illusion that the government has a "savings account" that can be drawn on to meet future shortfalls, allows the politicians to kick the fiscal problem down the road.

Second, the "Trust Funds" help support the popular illusion that the payroll taxes are somehow different than other income taxes. Otherwise, people would add their payroll tax of 15.3% with their 25% income tax (let's say on taxable income, married of $75,000) and realize that they are paying a marginal federal tax of 40.3%!

There is a general expectation, promoted by politicians, that somehow payroll taxes are like a pension "paid in" when working and "paid out" later. Having "Trust Funds" increases this false expectation. The American people would be much better off, and the politicians worse off, if the finances of the federal government were open and clear. Until this particular illusion dies, we cannot have realistic discussions about the current financial condition of the federal government.

Don't believe me; just check out the latest Citizen's Guide to the Financial Report of the U.S. Government, look at page iv. - http://www.fms.treas.gov/fr/13frusg/Citizens-Guide-2013.pdf

If you read the whole eight pages, you will also find that the "Official National Debt" does NOT include the real liability of $6.5 trillion of federal employee and veteran benefits payable. So that $17 trillion "National Debt" number you see bandied about in the news media ignores $6.5 trillion of real debt. Not an insignificant omission.

You cannot evaluate a stock without looking at the financials of the company, you should not ignore the "footnotes" of the financial statement greatest debtor the world has ever known.

Only when you understand the books can you fully appreciate the danger of the demographics, which are more important than the illusion of a "Trust Fund" anyway.

July 31 2014 at 8:17 PM Report abuse -1 rate up rate down Reply
1 reply to zebra365's comment

Yes, eliminate all safety nets for the workers and the poor. Then you can just let them die while the rich get more money

August 01 2014 at 7:43 PM Report abuse rate up rate down Reply
1 reply to weilunion's comment
Tom Wilson

Almost 70% of the population receives more in direct Federal government payments than they pay in Federal taxes. payments paid for almost entirely by the top 10% of taxpayers. The deck is definitely stacked in favor of the entitled class.

August 02 2014 at 3:14 PM Report abuse +1 rate up rate down

5. You do not need it

July 31 2014 at 5:45 PM Report abuse rate up rate down Reply

If the government were not running Social Security, they'd be arrested for running a Ponzi scheme. Ponzi schemes are illegal for good reason. It takes an Alfred E. Neuman to ask: "What me worry?"

July 31 2014 at 5:18 PM Report abuse -1 rate up rate down Reply
2 replies to cvnchichay's comment

No, readers google Ponzi scheme. Social Security was and is a contract, a social contract. But using words like Ponzi scheme will make you hate the program and do what your masters want -- invest in the tumbling and rigged casino economy

August 01 2014 at 7:44 PM Report abuse +1 rate up rate down Reply

No. The fact that current contributors pay for current recipients makes it a ponzi scheme.

August 02 2014 at 5:37 PM Report abuse -1 rate up rate down Reply

The real problem is that the SS is full of government I.O.U's.
That means that the fed must borrow more money to pay back these
I.O.U's to fund SS in the future. Which will raise again the national debt.
Most of the SS actual money has been borrowed and spent by our government.

July 31 2014 at 5:09 PM Report abuse +1 rate up rate down Reply
2 replies to mrscada's comment

Politicians like to buy votes using the national treasury (read: YOUR MONEY). And we have an electorate as ignorant as a child born yesterday.

July 31 2014 at 5:21 PM Report abuse rate up rate down Reply

The IOU's go back to the vietnam war which was paid for partially using SS funds. Any IUO's can be erased ;by raising the cap on income to fund the system

August 01 2014 at 7:45 PM Report abuse -1 rate up rate down Reply
1 reply to weilunion's comment

Raise the cap on income you gotta raise the cap on benefits.

August 02 2014 at 5:38 PM Report abuse +1 rate up rate down

I like the Roger Clemens story! SS is not and was NEVER intended as WELFARE!
(When it is given to those who never PAID into it then that is what it becomes!)
I would prefer to increase the SS Cap to $500,000 so the likes of Roger who not
too long ago earned 20 Million for a summers "WORK" and only paid on $100,000!
I strongly believe that if Roger and Others who are blessed to earn more and pay
more into SS Fund along with matching by employer that these blessed individuals
should when time comes to collect . . . be entitled to collect more!

July 31 2014 at 5:08 PM Report abuse rate up rate down Reply

The related article really only offers only some relatively short-term peace of mind. The SS System needs to be fixed and I see little reason to believe that Congress has the political will to fix it.

July 31 2014 at 4:48 PM Report abuse +1 rate up rate down Reply

Just increasing the deduction from 6.2 to 6.5 would make Social Security solvent for a long time. Or increasing the amount that the 6.2 percent is charged on to all income would more than do the trick. That is what they essentially did with Medicare when they started charging 1.45 on all income back in the 70's and they split the health care away from the retirement benefit. At one point it was all called Social Security and a total of 7.65 percent.

July 31 2014 at 3:35 PM Report abuse +2 rate up rate down Reply
1 reply to cpruitt221's comment

No the increase would not make SS more solvent. The increase is offset by higher payouts. You obviously have no clue how SS works. Furthermore, junior you have your facts wrong about medicare taxes. Perhaps you need to do look up the facts first

July 31 2014 at 4:14 PM Report abuse +2 rate up rate down Reply
2 replies to cdr1174's comment

No, you have your facts wrong. Get them right then twist them any way you want. SS is a social contract and thus to work all msut pay in. But the rich are exempt after $137,000. they have their lear jets and nannies while those on social security just get by. You say higher payouts but you never define what this means and of course can't for it means nothing

August 01 2014 at 7:51 PM Report abuse +1 rate up rate down

A social contract...where you are forced to participate? And no, not all beneficiaries have paid in.

August 02 2014 at 5:40 PM Report abuse +1 rate up rate down