Take-Away: Social Security Old Age & Survivors Insurance benefits are now projected to be cut to 77% starting in 2033.

Background: As part of the rhetoric with regard to the upcoming 2024 Budget  negotiations is the promise by both political parties that ‘no one is going to touch Social Security.’ While that sounds a bit comforting to guys like me who now receive Social Security Old Age &Survivors Insurance (OASI) benefits, by doing nothing Social Security’s Trust Fund continues on its downward spiral. Last week the Social Security Administration’s Trust Fund made its annual report to Congress, which projected depletion of OASI one year earlier than it did in its 2022 annual report. Some point made in the annual report included:

  • Beneficiaries: There were 66 million beneficiaries at the end of 2022.
  • Projected Depletion: The year in which the combined Trust Fund reserves for OASI and Disability Insurance (DI) are projected to become depleted if Congress does not act before then,  is 2034. For OASI, it is projected to become depleted one year earlier than what was projected in 2022.
  • OASI: The OASI Trust Fund reserves are actually projected to be depleted in 2033 using the 75-year long range period. The projection, with the one-year earlier depletion, is that 77% of the OASI benefits will be payable at that time.
  • DI: The DI Trust Fund reserves are not projected to become depleted during the 75-year long-range projection period.
  • Trust Fund Reserves Declined: The asset reserves of the combined OASI and DI Trust Funds declined by $22 billion in 2022, to a total of $2.830 trillion.
  • OASI Cost: The total cost of the Social Security program began to be higher than its total income starting in 2021. Social Security’s cost has exceeded its non-interest income since 2010.
  • Cost to Administer: The cost to administer Social Security program was $6.7 billion in 2022, but that was only 0.5% of its total expenses.
  • Source: www.socialsecurity.gov/OACT/TR/2023/.

Solution: I read a blog recently that was written after both political parties started to publicly spar over ‘not cutting Social Security.’ The blog noted that one way to address the shortfall in Social Security OASI but without increasing the budget, and without ‘touching’ Social Security benefits or increasing the Social Security wage base, was to impose an annual excise tax on all retirement benefit accounts of 3%. The blog pointed out that it is generally the wealthy who own large retirement account balances and for whom Social Security benefits will not ‘make or break them’ in their retirement years. In contrast, those in the lower economic strata seldom can save for retirement with annual retirement contributions from their wages, yet Social Security is their principal life-line in their retirement years. This proposed 3% tax could be collected directly by IRA custodians and plan administrators, allegedly simplifying any collection efforts. Frankly I doubt very much if this proposal would get much traction in Congress, but at least someone is at least thinking about the looming shortfall, while those in Congress continue to pander to their constituents, but then do nothing to address the projected shortfalls and reduction in benefits. With the large inflation adjustment in OASI benefits for 2023, I begin to wonder, and worry, what next year’s Social Security annual report will tell us.