I was checking out the 2021 Annual Report issued by the Social Security Board of Trustees recently and wanted to share some of the projections that the board summarized in their report. The good news is that the bad news can be fixed if Congress wants to fix it.
Before we look at what Washington can do to fix this program, let’s look at a few highlights (lowlights may be a better word) from the report.
- There are actually 2 trust funds: Old Age and Survivors Insurance (OASI) fund and the Disability Income (DI) fund. On your pay stub, these are combined and referred to as OASDI.
- The OASI Trust Fund, which pays retirement and survivors benefits, what we typically refer to as social security, will be able to pay scheduled benefits on a timely basis until 2033. At that time, the fund’s reserves will become depleted and continuing tax income will be sufficient to pay 76 percent of scheduled benefits.
- The DI Trust Fund, which pays disability benefits, will be able to pay scheduled benefits until 2057. At that time, the fund’s reserves will become depleted and continuing tax income will be sufficient to pay 91 percent of scheduled benefits.
- Currently, earnings up to $142,800 are taxed for Social Security (OASDI) benefits.
Here is what the Social Security Board of Trustees concluded from this report:
Lawmakers (Congress) have many policy options that would reduce or eliminate the long-term financing shortfalls in Social Security and Medicare. Lawmakers should address these financial challenges as soon as possible. Taking action sooner rather than later will permit consideration of a broader range of solutions and provide more time to phase in changes so that the public has adequate time to prepare.
So, the good news is that there is that there is still a little cushion in the trusts. As the board stated, if the government takes action now, it will be a lot less painful than if we wait until it’s all gone.
Now, let’s see what actions Congress can take that are relatively painless and good for everybody, not just their party:
- Remove the income cap, currently $142,800, that is subject to OASDI payroll tax. Some estimates show that eliminating the cap next year would mean the trust fund reserves would be depleted in 2057 instead of 2033.
- Another solution is means testing. This means that people who have an income over a certain level would be phased out of getting any benefits. I’m pretty sure that millionaires and billionaires can probably get by without their social security check every month.
Using these 2 solutions could keep the OASDI trusts from drying up and will help the people that truly rely on their social security check to live, which is more people than you can imagine.
These are simple solutions that, I believe, would have bipartisan support in both the House of Representatives and the Senate. Unfortunately, if past performance is any indication, I am pretty certain that they won’t do anything until the eleventh hour, which means about December 2032.
Please let me know if you have any questions.
Joe Baker, CFP®
Baker Asset Management, LLC
joebaker@bakerassetmanagement.com
