Loren Adler and Shai Akabas contributed to this post.
On Friday, the trustees of Social Security released their annual report, which includes an assessment of the program’s financial health. The Social Security actuaries estimate that the Old Age and Survivor’s Insurance (OASI) Trust Fund will be depleted in 2035 and the Disability Insurance (DI) Trust Fund will be depleted in 2016, unchanged from the projections made one year ago. Recent news of falling deficits must not lull policymakers into a false sense of security. The nation’s long term fiscal problems remain challenging.
We are one year closer to 2016, when the Social Security Disability program will only be able to pay 80 percent of claims, and to 2035, when the program for those of retirement age and their survivors will only be able to pay 77 percent of scheduled benefits. Yet, policymakers have taken no action to address Social Security’s financial imbalance. The longer they wait, the less attractive the options will be.
Retirement security is deteriorating as private-sector defined benefit pensions, which promise an annual income for as long as retirees live, are in decline, and other savings vehicles are not making up the difference. Over half of American workers – and over 60 percent of low-income workers – are at risk for not being able to maintain their standard of living in retirement, according to a report from the Center for Retirement Research at Boston College. Inadequate savings, declining home values, and many other factors have contributed to this situation. As a result, many future retirees will be reliant on Social Security for all or a vast majority of their income during old age. Viable solutions to restore the solvency of the OASI Trust Fund have been proposed by many, including the Bipartisan Policy Center’s Domenici-Rivlin Debt Reduction Task Force, which Senior Vice President Bill Hoagland recently highlighted in testimony to the House Ways and Means Committee.
The Social Security DI program has its own challenges. The program has grown significantly over the last decade, from 7.2 million beneficiaries in 2002 to 10.9 million in 2012. This reflects a 51 percent increase in the prevalence rate, from 39 to 59 beneficiaries per thousand insured. The Social Security Administration also has a substantial backlog of disability claims to adjudicate. The DI program still operates on the assumption that people with disabilities cannot work at all, and its benefits phase out quickly if beneficiaries try to return to employment. As such, the program is ripe for reform that would improve solvency and program operations, while offering a structure that would help beneficiaries return to work to the extent of their abilities.
Reforms to ensure the sustainability of these vital programs will not be easy, but over time, as more immediate reforms are required, they will only grow more difficult and more disruptive to Americans who rely on Social Security.