New York Estate Planning & Elder Law Blog
A recent report by the Old-Age, Survivors, and Disability Insurance Trust (OASDI) Board of Trustees indicates that funding for the nation’s Social Security program will face massive funding deficits in the coming future. According to OASDI’s 2017 Report, Social Security will begin paying out billions more than it takes in starting in 2022, due in large part to waves of Baby Boomers entering retirement.
Currently, more than 62 million Americans rely on benefits from Social Security to help pay for basic expenses like food and shelter. Of that number, 42.8 million are retired workers who have already paid into the system while the remainder are beneficiaries are those who are the disabled or and the survivors of workers who’ve passed away. The Center on Budget Policy and Priorities found in 2016 that Social Security’s guaranteed monthly payout ensures that over 22 million people are kept out of poverty, 15 million of which are retired workers.
Since 1982, the OASDI trust has consistently taken in more income than it has paid out to American retirees. OASDI’s reserves currently sit at $2.9 billion, which is primarily invested in special-issue bonds, and is expected to hit roughly $3 trillion by 2021. However, just one year after the reserve assets peak, funding is expect to take a sharp downturn as millions of Baby Boomers enter retirement.
In addition to the increase in Americans claiming Social Security benefits, the system will suffer from financial strain due to increased longevity the average person enjoys compared to when the system was implemented over 80-years ago. Today, a typical 65-year old person can expect to live an additional 20-years on average compared to just a few decades ago. Simply put, more Americans are living longer and there are not enough new workers entering the workforce to fund the system with payroll taxes.
Fortunately, the system as a whole is not likely to bankrupt even if Social Security’s reserve funds are depleted in 2034 as expected. Thanks to its three primary funding sources, a 12.5 percent payroll tax, interest earned on asset reserves, and taxes on Social Security benefits, the system can still make payouts to eligible retirees. However, across the board cuts may eventually need to be enacted to sustain these payments until 2091. As a result, millions of seniors could be put in financial dire straits if these cuts are made.