Social Security nears its payout threshold



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Social Security to See Payout Exceed Pay-In This Year
Published: March 24, 2010

This year, the system will pay out more in benefits than it receives in payroll taxes, an important threshold it was not expected to cross until at least 2016, according to the Congressional Budget Office.

Stephen C. Goss, chief actuary of the Social Security Administration, said that while the Congressional projection would probably be borne out, the change would have no effect on benefits in 2010 and retirees would keep receiving their checks as usual.

The problem, he said, is that payments have risen more than expected during the downturn, because jobs disappeared and people applied for benefits sooner than they had planned. At the same time, the program’s revenue has fallen sharply, because there are fewer paychecks to tax.

Analysts have long tried to predict the year when Social Security would pay out more than it took in because they view it as a tipping point — the first step of a long, slow march to insolvency, unless Congress strengthens the program’s finances.

“When the level of the trust fund gets to zero, you have to cut benefits,” Alan Greenspan, architect of the plan to rescue the Social Security program the last time it got into trouble, in the early 1980s, said on Wednesday.

That episode was more dire because the fund could have fallen to zero in a matter of months. But partly because of steps taken in those years, and partly because of many years of robust economic growth, the latest projections show the program will not exhaust its funds until about 2037.

Still, Mr. Greenspan, who later became chairman of the Federal Reserve Board, said: “I think very much the same issue exists today. Because of the size of the contraction in economic activity, unless we get an immediate and sharp recovery, the revenues of the trust fund will be tracking lower for a number of years.”

The Social Security Administration is expected to issue in a few weeks its own numbers for the current year within the annual report from its board of trustees. The administration has six board members: three from the president’s cabinet, two representatives of the public and the Social Security commissioner.

Though Social Security uses slightly different methods, the official numbers are expected to roughly track the Congressional projections, which were one page of a voluminous analysis of the federal budget proposed by President Obama in January.

Mr. Goss said Social Security’s annual report last year projected revenue would more than cover payouts until at least 2016 because economists expected a quicker, stronger recovery from the crisis. Officials foresaw an average unemployment rate of 8.2 percent in 2009 and 8.8 percent this year, though unemployment is hovering at nearly 10 percent.

The trustees did foresee, in late 2008, that the recession would be severe enough to deplete Social Security’s funds more quickly than previously projected. They moved the year of reckoning forward, to 2037 from 2041. Mr. Goss declined to reveal the contents of the forthcoming annual report, but said people should not expect the date to lurch forward again.

The long-term costs of Social Security present further problems for politicians, who are already struggling over how to reduce the nation’s debt. The national predicament echoes that of many European governments, which are facing market pressure to re-examine their commitments to generous pensions over extended retirements.

The United States’ soaring debt — propelled by tax cuts, wars and large expenditures to help banks and the housing market — has become a hot issue as Democrats gauge their vulnerability in the coming elections. President Obama has appointed a bipartisan commission to examine the debt problem, including Social Security, and make recommendations on how to trim the nation’s debt by Dec. 1, a few weeks after the midterm Congressional elections.

Although Social Security is often said to have a “trust fund,” the term really serves as an accounting device, to track the pay-as-you-go program’s revenue and outlays over time. Its so-called balance is, in fact, a history of its vast cash flows: the sum of all of its revenue in the past, minus all of its outlays. The balance is currently about $2.5 trillion because after the early 1980s the program had surplus revenue, year after year.

Now that accumulated revenue will slowly start to shrink, as outlays start to exceed revenue. By law, Social Security cannot pay out more than its balance in any given year.

For accounting purposes, the system’s accumulated revenue is placed in Treasury securities.

In a year like this, the paper gains from the interest earned on the securities will more than cover the difference between what it takes in and pays out.

Mr. Goss, the actuary, emphasized that even the $29 billion shortfall projected for this year was small, relative to the roughly $700 billion that would flow in and out of the system. The system, he added, has a balance of about $2.5 trillion that will take decades to deplete. Mr. Goss said that large cushion could start to grow again if the economy recovers briskly.

Indeed, the Congressional Budget Office’s projection shows the ravages of the recession easing in the next few years, with small surpluses reappearing briefly in 2014 and 2015.

After that, demographic forces are expected to overtake the fund, as more and more baby boomers leave the work force, stop paying into the program and start collecting their benefits. At that point, outlays will exceed revenue every year, no matter how well the economy performs.

Mr. Greenspan recalled in an interview that the sour economy of the late 1970s had taken the program close to insolvency when the commission he led set to work in 1982. It had no contingency reserve then, and the group had to work quickly. He said there were only three choices: raise taxes, lower benefits or bail out the program by tapping general revenue.

The easiest choice, politically, would have been “solving the problem with the stroke of a pen, by printing the money,” Mr. Greenspan said. But one member of the commission, Claude Pepper, then a House representative, blocked that approach because he feared it would undermine Social Security, changing it from a respected, self-sustaining old-age program into welfare.

Mr. Greenspan said that the same three choices exist today — though there is more time now for the painful deliberations.

“Even if the trust fund level goes down, there’s no action required, until the level of the trust fund gets to zero,” he said. “At that point, you have to cut benefits, because benefits have to equal receipts.”

Stephanie Strom contributed reporting.


Senior Member
Those of us who get very little would not be able to manage if they cut our checks. It's very scary. We are just left, completely ignored.


Senior Member
1. Stop the borrowing from the trust fund.

2. Uncap FICA contributions above $106,800. Warren Buffett is right on this.

Greenspan is the architect of our current financial crisis. Don't listen to him, he even did a mea culpa.


Senior Member
Woodridge, IL
I agree that there is no way many people can survive on any less than they already pay us

if they would stop being so stupid and cosntantly borrowing from this fund, they woudln't have this problem.....we paid into it, no way shoudl we have to suffer bc they can't figure thigns out.....let's see those responsible for this mess try to live on what we are getting now, let alone what it would be like with any reduction

not to mention that they need to stop thinking/acting like it is only seniors facing this issue - I know I keep pointing this out, but it is true that they just refuse to acknowledge that people with disabilities coutn on this income.....when we truly cannot work, what esle are we supposed to do?

(& it is not that I don't feel for the seniors - I do, but if they are physically and cognitively able to work, at least they do still have that option - we don't.....and they generally are getting more moeny to start with anyway - the amt receieved on average by peopl with disabilities is substantially lower than that of most senriors)


Senior Member
Tammie, I think it's the misconceptions. They all think of people with disabilities as just people in wheelchairs who can still work at desk jobs. They don't think about those of us who cannot work at all due to our bodywide disabilities. They just ignore us and the fact that many of us got sick very young and did not get to build up enough of a work history to get a higher amount of social security. I have a healthy elderly family friend who gets in almost three times what I get in because she worked alot of years. She lives very comfortably on her check. I am almost half her age younger and get in a third of what she gets in. I don't live comfortably. There is no fairness there. It's not my fault that I got sick young and couldn't work. I'd be in big trouble if they cut my check. As it is, I live it fear of what will happen to me.


Senior Member
Who cares? All they have to do is trim the 650 billion dollar defense budget and health care would be no problem.