Brenton Smith: “Is the Social Security Trust Fund Real"?”

Writing for FedSmith: check it out here.

The Social Security Trust Fund has been around for 80 years. Over that time, its role within the program has changed, but the argument has remained the same. Is the Trust Fund real or simply an accounting ledger where wonks play with imaginary cash?

It has lingered for decades because there is no right or wrong answer to the question of whether the Trust Fund is real. It is a theoretical question where different assumptions lead to opposite conclusions.

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New paper from the NBER: “Social Security Wealth, Inequality, and Lifecycle Saving”

Social Security Wealth, Inequality, and Lifecycle Saving
John Sabelhaus and Alice Henriques Volz #27110
  
Abstract:

Wealth inequality in the US is high and rising, but Social Security is generally not considered in those wealth measures. Social Security Wealth (SSW) is the present value of future benefits that an individual will receive less the present value of future taxes they will pay. When an individual enters the labor force, they generally face a lifetime of taxes to pay before they will receive any benefits, and thus their initial SSW is generally low or negative. As an individual works and pays into the system their SSW grows and generally peaks somewhere around typical Social Security benefit claim ages. The accrual of SSW over the working life is most important for lower-income workers because the progressive Social Security benefit formula means that taxes paid while working are associated with proportionally higher benefits in retirement. We estimate SSW for individuals in the Survey of Consumer Finances (SCF) for 1995 through 2016 and use a pseudo-panel approach to empirically demonstrate those lifecycle patterns. We also show that including SSW in a comprehensive wealth measure generally reduces estimated levels of wealth inequality but does not reverse the upward trend in top wealth shares.

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Social Security’s Financial Outlook: The 2020 Update in Perspective

by Alicia H. Munnell, Center for Retirement Research at Boston College

IB#20-7

The brief’s key findings are:

• The 2020 Trustees Report, which was prepared before the pandemic, shows:
  • Social Security’s 75-year deficit increased from 2.78 percent to 3.21 percent of payroll.
  • Trust fund depletion remains at 2035, after which payroll taxes still cover about three quarters of promised benefits.
• This shortfall is manageable, and the pandemic is unlikely to fundamentally alter the long-term financial status of the program.
• Today’s crisis has also underscored the importance of Social Security, which continues to provide a steady source of income to millions of Americans.
• Therefore, once the crisis subsides, stabilizing Social Security’s long-term finances should be a high priority to ensure that Americans have full confidence in its future

DOWNLOAD FULL BRIEF

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