Monday, February 8, 2010

USA Today: Rash of retirements push Social Security to brink

USA Today's Richard Wolf reports that "a rash of retirements" – and disability applications – have worsened Social Security's finances, pushing it into deficits several years before government agencies had previously projected. At the same time, it's worth asking, "The brink of what?" It's not the brink of insolvency, since solvency is measured by the balance of the trust fund – which remains at over $2.5 trillion – rather than by cash flows. In fact, what we're facing isn't a problem for Social Security so much as a problem caused by Social Security: that is, Social Security payments will be made because it can and will redeem bonds held in the trust fund. However, after decades of being subsidized by Social Security, the non-Social Security budget will be forced to pony up and start repaying what it borrowed. The problem is that the money isn't there, and in fact the budget is facing record deficits due to falling tax revenues and rising spending. This is a time when tough choices need to be made or they'll be made for us, by the Chinese and others overseas who are currently financing our deficits. Better to make them ourselves.


Bruce Webb said...

Early retirements should theoretically leave OAS whole longterm. On the other hand it would appear that DI is getting crushed. Subtract DI out and OAS even now doesn't look that bad.

Andrew G. Biggs said...

Early retirements do hurt because the marginal return to extra work is so low; had people worked an extra year or two almost all the taxes they pay would go toward helping solvency since almost none go toward increased benefits. That said, DI is worse, as you say, since those folks receive benefits calculated as of the full retirement age and almost never come off DI.