The Social Security Trust Fund will run out of money in 2032
The funds that support Social Security retirement payments are running out faster than expected.
An economic outlook released Wednesday by the nonpartisan Congressional Budget Office determined that Social Security’s Old Age and Survivors Insurance trust fund will be bankrupt by 2032, one year ahead of schedule.
This affects one of the two largest trust funds that fuel Social Security payments. This dwindling reserve is reserved for benefits for retirees and the immediate family members of deceased workers, who account for more than 62 million Americans, or about 90% of all Social Security beneficiaries. The remaining beneficiaries receive disability benefits funded by a separate trust.
However, they can eventually be affected, too. If the Social Security retirement fund becomes insolvent, the remaining trust fund will be used to bankroll all benefits, and will last only one year before it runs dry, again.
But experts say that’s a good if — and the financial woes plaguing Social Security sound far scarier than they really are.
Is Social Security really going to run out of money?
About one-third of Americans say they believe Social Security won’t be there for them in retirement, according to a December survey from the CATO Institute, a libertarian think tank.
This fear stems from the idea that Social Security will run out of money. But economist Stephen Nuñez argues that the term “bankruptcy” is misleading and not a good way to think about what’s happening with Social Security.
“No bankruptcy or collapse is on the cards,” wrote Nuñez, director of economics at the liberal-leaning Roosevelt Institute, in a recent report.
That’s because, experts say, even if Social Security’s trust funds were completely eliminated, about 80% of Social Security benefits would continue to flow because they’re funded in real time by taxes paid. And that scenario assumes that Congress ignores the issue.
“Even if nothing is done, people will continue to receive the bulk of their benefits,” wrote Alicia Munnell, founder of the Center for Retirement Research at Boston College, last May. “However, no one wants to see 20% of their retirement benefits immediately cut from their Social Security retirement benefits.”
Social Security is notoriously aloof from the political branch, which has led Nuñez to find it unlikely that lawmakers will simply allow Social Security to tap into payments.
He noted that Social Security faced similar deficits in the 1980s, and lawmakers came together to pass reforms in 1983. Those changes were supposed to ensure decades of fiscal stability until 2058. However, the Great Recession and rising income inequality have changed the calculus upon which reforms are built, and Social Security needs a legislative overhaul.
Other popular reforms include exempting earnings above $400,000 from the payroll tax, gradually increasing the retirement age and reducing benefits for high earners.
Nuñez said finding the best solution — “instead of predicting doom and gloom” — should be the focus.
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