The Social Security Trustees released their annual report today on the program’s financial health, predicting a significantly larger funding shortfall than was projected only a few years ago.
Most news reports focus on the year when Social Security’s trust fund will be exhausted – today’s Trustees report projects insolvency in 2033, four years earlier than last year’s report.
But the key measure is the system’s “actuarial deficit,” which measures funding shortfalls over a full 75-year period. This year, the Trustees project a 75-year shortfall equal to 2.67 percent of the total wage base. That’s around $9.1 trillion in present value dollar terms, meaning that if we set aside $9.1 trillion today, earning interest, we’d have enough to cover full benefits for the next 75 years. Going back only to 2010, the Trustees projected a much smaller actuarial deficit of only 1.92 percent of payroll, equal to $5.9 trillion. So things have gotten a lot worse in a short space of time.
There are a lot of reasons for this, but the main drivers include rising disability costs, longer life spans and the effects of recession on tax receipts.
The short story is first, that taxes are going to have rise or benefits be cut, and by more than we previously thought; and second, the longer we wait to fix the system the bigger those cuts will have to be. Both President Obama and Gov. Romney should start talking about how they would fix Social Security.