Although the deficit in the Social Security program is expected to increase even prior to the coronavirus pandemic, a new report from theCenter for Retirement Research at BostonCollege points out that the program’sfinancing shortfall over the next 75 yearsis “manageable” and, once the pandemichas been dealt with, can — and should —be addressed to allow it to continue to payfull promised benefits to retirees.
Four factors weigh on the 75-year
deficit, which has increased from 2.78
percent to 3. 21 percent of taxable pay-
roll. Those factors are:
• repeal of the tax on high premi-
um health plans, resulting in lower
earnings and payroll taxes;
• a lower assumed total fertility rate;
•lower inflation, which reduces
earnings and payroll taxes before it
•and a lower interest rate, whichmeans less discounting of largefuture deficits.
Between a lower fertility rate, whichcuts the number of future participantsin the program, and a wave of retiringboomers, the ratio of workers to retirees has fallen from about 3: 1 to 2: 1; thathas raised costs accordingly. When theeffect of longer lifespans is added in—meaning that retirees collect benefitsfor a longer period of time—there is aproblem along the road ahead.
In addition, the Great Recession took
a toll on the Social Security trust fund,
which wasn’t expected to be tapped to
help pay benefits until several years later
than actually happened. What’s being
drawn on now is the interest on the trust
fund; but because payroll taxes are inad-
equate to cover all the legislated benefits
they are intended to cover, that means
the program will have to start drawing
on the principal in the trust fund.
However, says the report, not onlydoes the trust fund depletion date remainat 2035, payroll taxes still will be able tocover approximately 79% of promisedbenefits. And the coronavirus is unlikely“to fundamentally alter the long-termfinancial status of the program.”
What the pandemic has done is highlight how important the Social Securityprogram is to millions of Americans andtheir financial well-being, as well asto pose potential problems that couldbe solved by policymakers as previousissues have been.
The report adds that there will besome effects of Covid- 19 on some groupsof retirees: “To the extent that COVID- 19results in a decline in average earnings in2020, those born in 1960 (who turn 60 in2020) could see a permanent cut in theirbenefits. The problem arises becausepast earnings and the benefit formulaare adjusted by Social Security’s AverageWage Index.” The resulting calculationscould result in a “notch” group.
NO PUBLIC TRUSTEES SINCE 2015
In addition, the report points out thatthere has been no replacement of pub
Factors Affecting Social Security’s Future
Despite these issues, the Center for Retirement Research says the shortfall
over the next 75 years can be managed.
By Marlene Satter and Ginger Szala