As we continue to wait for the 2021 annual report from the Trustees of the Social Security and Medicare trust funds to see what the coronavirus pandemic did to projections on when the trust funds will be depleted, there is an update from the nonpartisan Congressional Budget Office (CBO).
The new projections from CBO, provided in a July update to its 2021 Long-Term Projections for Social Security first released in March, state that the Social Security Trust Fund is slated to be exhausted in 2032—which is a full year later than CBO projected last year, but is 3 years earlier than the 2020 Social Security trustees report, released in April 2020 (and notably written before the economy went into recession because of the coronavirus pandemic).
That now dated 2020 Trustees report finds the combined asset reserves of the Old-Age and Survivors Insurance and Disability Insurance (OASI and DI) Trust Funds are projected to become depleted in 2035, the same as it projected in 2019, with 79% of benefits payable at that time. This is assuming there are no changes in taxes and benefits.
And while last year the annual trustees report came out in April, we are into August 2021 with no new trustees report.
Which leads us back to the CBO projections.
CBO’s current projections of the trust funds’ exhaustion dates are later than they were in last year’s projections—by one year for the OASI trust fund, by nine years for the DI trust fund, and by one year for the two trust funds combined.
All told, CBO’s projections of income credited to the combined OASDI trust funds are 4.4% higher over the 2021-2032 period than they were last year, and its projections of expenditures are 1.1% higher. Because the increases in projected income more than offset the increases in projected expenditures, CBO now anticipates that the exhaustion date for the combined trust funds will be later than the agency expected last year.
In its March 2021 report, CBO projected that the OASI trust fund would be exhausted in calendar year 2032 and the DI trust fund in calendar year 2035—again, if current laws remained in place. If the funds’ balances were combined, the resulting Old-Age, Survivors, and Disability Insurance (OASDI) trust funds would be exhausted in calendar year 2032.
CBO shortfall projections
Because the trust funds’ revenues are currently lower than their outlays and projected to grow more slowly than those outlays, the Social Security program has a long-term actuarial deficit.
Over the next 75 years, if current laws remained in place, the program’s actuarial deficit would equal 1.7% of GDP, or 4.9% of taxable payroll, CBO projects. If this is the case, the federal government could pay the benefits prescribed by current law and maintain the necessary trust fund balances through 2095 if payroll taxes were raised immediately by about 4.9% of taxable payroll, if scheduled benefits were reduced by an equivalent amount, or if some combination of tax increases and spending reductions of equal present value was adopted.
The CBO report goes on to say that a policy that eliminated the 75-year shortfall by increasing revenues or reducing outlays—and that did so by the same percentage of taxable payroll each year—would not place Social Security on a financial path that was sustainable beyond that period.
Estimates of the actuarial deficit do not account for revenues or outlays after the 75-year projection period ends, and the gap between revenues and outlays would rise thereafter. Because projected shortfalls are generally smaller earlier in the period than they are later, such a policy would create surpluses in the next few decades but result in deficits later and would not leave the system on a sustainable financial path after 2095.
SEE ALSO:
- Social Security Combined Trust Funds Projection Unchanged
- Social Security COLA Estimate Rises Again on Inflation Fears
- Americans Struggle to Understand Social Security
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
