The 2015 Social Security Trustees Report has again reported that shortfalls await—more for the Disability Insurance trust fund than for the Old Age and Survivors trust fund—and something must be done, preferably sooner rather than later, to deal with that.
According to a brief by Alicia Munnell, director of the Center for Retirement Research at Boston College and the Peter F. Drucker Professor of Management Sciences at Boston College’s Carroll School of Management, the question is what Congress will do “to restore confidence in the nation’s major social insurance program and to give people time to adjust to needed changes.”
While Munnell said the statistics indicate improvement from the previous year—“ the 75-year deficit declined from 2.88 percent in 2014 to 2.68 percent in 2015 and the date of trust fund exhaustion moved from 2033 to 2034”—she focused on the intermediate-cost assumptions of the actuaries, “which show the cost of the program rising rapidly to about 17 percent of taxable payrolls in 2035, where it remains for several decades before drifting up to 18 percent of taxable payrolls.”
The demographics-driven increase in costs is no surprise, she said, but does mean that the system “is facing a 75-year deficit.”
Calculating the long-run deficit to equal 2.68 percent of covered payroll earnings, she said, “means that if payroll taxes were raised immediately by 2.68 percentage points—1.34 percentage points each for the employee and the employer—the government would be able to pay the current package of benefits for everyone who reaches retirement age at least through 2089.”
But that’s “not the end of the story,” she added, and said that eliminating that 75-year deficit should be looked at as a “first step toward long-run solvency.”
Munnell also commented on the elimination in the 2014 report of benefit replacement rates, which help people plan for their retirement and also indicate how changes in the law will affect retirement security.
The data were not restored in the 2015 report, and that is a problem not just for people trying to project their own retirements but also because “policymakers will be led to believe that raising the Full Retirement Age would not harm retirement security for those unable to work longer.”
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