The Value of Social Security – The Cost and Coverage in 2019

Social Security aids many people every year with retirement, disability, survivor, and other benefits. It’s natural, then, for so many reliant people to be concerned with the status of social security funds. Recent projections estimate that changes need to occur for social security to continue functioning at an optimal level. Social Security Disability Advocates USA is here with an overview of the current financial situation of social security.

What Is Social Security?

Social Security is the umbrella that describes the benefits the Social Security Administration distributes. In the early 1900s, with the industrial revolution, urbanization of America, and increased life expectancies, people were finding themselves more and more without care and without savings, especially as they got older.

A change had to happen. People in America, up until the early 1930s, had little to rely on after they retired. Even though state-run pension systems existed prior to the Social Security Act (and company pensions existed even earlier), the relief was not enough for the majority of Americans. The benefits simply could not sustain people after they retired.

President Franklin Roosevelt created the social security program on August 14, 1935 during the Great Depression to care for the poor and elderly. Additional benefits for spouses, children, and the disabled were added as time went on. Now, the Social Security Administration cares for about one in five people in the United States – that’s about 62 million people!

Where Do Social Security Funds Come From?

The funds for social security’s programs come from primarily the FICA tax, or the payroll tax. Workers pay 6.2% of their wages up to the taxable maximum, and their employers also pay 6.2% (if you are self-employed, you pay 12.4%) up to the taxable maximum. Social security is a pay-as-you-go program, meaning that workers’ current contributions aid current beneficiaries.

These funds go into two trust funds from which the Social Security Administration distributes benefits: the Old Age and Survivors Insurance (OASI) trust fund, and the Disability Insurance (DI) trust fund. These trust funds are separate by law, but to talk about social security as a whole, let’s combine them to make the OASDI.

The majority of OASDI funds come from the payroll taxes. However, additional funds come from interest earned on trust fund reserves, revenue from taxing social security benefits, and reimbursements from the General Fund of the Treasury.

What Is the Problem?

Whenever the Social Security Administration has excess funds, it must by law invest those funds for future beneficiaries. For the past few decades, social security has been collecting more money than it has been distributing in benefits. This left their OASDI trust fund reserves with $2.9 trillion. However, this is soon to change.

Here’s the problem:

The birth rate of Americans is on the decline. In fact, 2017 had a birth rate of about 1,765 births per 1,000 women. This is far less than the 2,100 births per 1,000 women that would keep the population going. The birth rate is so low, in fact, that if it weren’t for immigration, the U.S. population would be declining.

Combine this with the fact that baby boomers are retiring at astonishing rates. About 10,000 baby boomers reach retirement age each day, and there just aren’t as many young people that are working and paying towards social security. Thus, if trends continue, the Social Security Administration will need to dip into its OASDI trust funds reserves to pay for the promised benefits.

How Much Is Social Security?

In 2018, the total income of the social security administration was $1,003 billion, and the total expenditures cost $952 billion. This left the trust funds reserves with an additional $51 billion. $920 billion of the money spent was non-interest income, while $83 billion came from interest earnings.

Since its inception, however, the Social Security Administration has collected many trillions of dollars. The value of social security, in total, accounts for about 6% of the U.S. GDP (even though SSA funds are not technically calculated in the GDP).

Will Social Security Last?

Under intermediate assumptions, the OASDI trust funds reserves are adequate for approximately the next 10 years to cover projected costs. However, because of increased life expectancies, greater amounts of retirees, fewer people in the workforce, and greater income inequality, the social security trust funds reserves will most likely run dry by 2035, according to the most recent report.

Looking at the OASI and DI trust funds separately, the DI trust fund will run dry by 2052. At that point, continued income will be sufficient for 96% of scheduled benefits. The OASI trust fund is on track to run dry in 2034, at which point continued income will be sufficient for 77% of scheduled benefits. Combined, though, the OASDI trust funds will run dry in 2035, at which point continued income will cover about 79% of scheduled benefits.

This means that if nothing changes, nearly one-fourth of benefits amounts will be cut for beneficiaries.

How Can We Prevent This?

To begin, the lack of money in the social security trust funds does not mean social security is headed towards bankruptcy or insolvency. Even if the trust funds were to become insolvent, the payroll tax generates enough money to pay for 79% of scheduled benefits. Now, the ideal number would be higher than this, but it is not zero. If trust funds do run dry, social security beneficiaries will get significantly less money, but at least they’ll get something.

To prevent social security trust funds from becoming insolvent, legislators in Congress have to act. The Social Security Administration can do very little on its own; the fact remains that laws must change for social security to remain solvent.

Legislators in Congress, thankfully, have a variety of options to choose from. Here are just a few considerations:

Solutions

• Increase taxes – An increase in the FICA tax is a simple, straightforward option that could help lessen or close the financial gap social security suffers from. The current employer/employee percentage is 6.2%. Raising this percentage even just a little could help with the approaching shortcomings.
• Cut the COLA – Cost of Living Adjustments (COLA) are factored into social security benefits and are determined by a variety of factors. A lower COLA would mean more money saved for future beneficiaries, but less money for current beneficiaries.
• Increase the taxable maximum – For 2019, the current taxable maximum amount of income for an individual is $132,900. Raising the maximum would allow the SSA to collect more money for beneficiaries.
• Cut benefits – Cutting benefits, while certainly not a popular option, would help save money to keep the trust funds solvent for future beneficiaries.
• Change eligibility requirements – Raising the retirement age seems to be one of the least harmful options. Having people working and contributing more before collecting benefits puts more cash in the SSA’s trust funds.

Have Questions About the Value of Social Security?

If you have questions about income limits and your eligibility for disability benefits, contact Social Security Disability Advocates USA right away! Our attorneys who focuse on claims/appeals/hearings for Social Security Disability benefits are always standing by and ready to address all your social security disability concerns. Call us anytime at 602-952-3200, or contact us on the web and check out our Live Chat feature. Consultations are free, so don’t wait; contact us today!

This is attorney advertising. SSDA, LLC is a group of attorneys that pursues claims for Social Security Disability benefits on behalf of its clients against the Social Security Administration. SSDA, LLC is in no way a part of the Social Security Administration. Further, the information on this blog is for general information purposes only. Nothing herein should be taken as legal advice. This information is not intended to create, and receipt or viewing does not constitute, a representative-client relationship.