While the future ramifications of the pandemic remain uncertain, it did apparently have an impact on the long-term financial status of the Social Security Trust Funds.
According to the Social Security Board of Trustees’ annual report released Aug. 31, 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 2034—one year earlier than projected last year. If Congress does not act before then, there would be sufficient income coming in to pay only 78% of scheduled benefits at that time.
The OASI Trust Fund—which pays retirement and survivors benefits—is projected to become depleted in 2033, one year sooner than last year’s estimate, with 76% of benefits payable at that time. The DI Trust Fund—which pays disability benefits—is estimated to become depleted in 2057, eight years earlier than last year’s estimate, with 91% of benefits still payable.
A summary of the annual Social Security and Medicare reports explains that the data and projections presented include the Trustees’ best estimates of the effects of the COVID-19 pandemic and the 2020 recession, which were not reflected in last year’s reports. It notes, for example, that the finances of both programs have been significantly affected, as employment, earnings, interest rates and GDP dropped substantially in the second quarter of 2020. And while these economic indicators are presumed to rise gradually toward full recovery by 2023, the level of worker productivity and GDP assumed are projected to be permanently lowered by 1%, even as they are projected to resume their pre-pandemic trajectories, the summary notes.
The Trustees also project elevated mortality rates related to the pandemic through 2023, as well as reductions in immigration and childbearing in 2021-22 from the levels projected in the 2020 reports. “The Trustees’ projections in this year’s report include the best estimates of the effects of the COVID-19 pandemic on the Social Security program,” Kilolo Kijakazi, Acting Commissioner of Social Security, said in a statement. “The pandemic and its economic impact have had an effect on Social Security’s Trust Funds, and the future course of the pandemic is still uncertain. Yet, Social Security will continue to play a critical role in the lives of 65 million beneficiaries and 176 million workers and their families during 2021.”
Annual Costs and Shortfalls
Other key findings show that the total annual cost of the Social Security program is projected to exceed total annual income—for the first time since 1982—in 2021 and remain higher throughout the 75-year projection period. As a result, asset reserves are expected to decline beginning in 2021 and in all years thereafter.
Other findings from the report include:
- Total income, including interest, to the combined OASI and DI Trust Funds amounted to $1.118 trillion in 2020 ($1.001 trillion from net payroll tax contributions, $41 billion from taxation of benefits and $76 billion in interest).
- Total expenditures from the combined OASI and DI Trust Funds amounted to $1.107 trillion in 2020.
- Social Security paid benefits of $1.096 trillion in calendar year 2020. There were about 65 million beneficiaries at the end of the calendar year.
- The projected actuarial deficit over the 75-year long-range period is 3.54% of taxable payroll—higher than the 3.21% projected in last year’s report.
- During 2020, an estimated 175 million people had earnings covered by Social Security and paid payroll taxes.
- The combined Trust Fund asset reserves earned interest at an effective annual rate of 2.6% in 2020.
The Board of Trustees usually comprises six members with four serving by virtue of their positions with the federal government: Treasury Secretary Janet Yellen; Acting Commissioner of Social Security Kilolo Kijakazi; Health and Human Services Secretary Xavier Becerra; and Labor Secretary Martin Walsh. The two public trustee positions are currently vacant.
The trustees emphasize that lawmakers 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,” they conclude.
The Social Security and Medicare Trustees Reports are available here.
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