Social Security Marches Towards Insolvency

Well, this should give plenty of people cause for sleepless nights. That rosy expectation that Social Security wouldn't run into the red until 2017 as estimated back in 2008 under then CBO chief Peter Orszag was just that - way too rosy.

It now looks like Social Security will begin running into the red this year, and except for a 2 year blip in 2013 and 2014, will begin running deeper and deeper into the red each year thereafter.

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.

While the Times says that the SS fund wont go insolvent until 2037 or so, that ignores that the SS fund is itself loaded for bear with nothing but Treasury IOUs. We've been borrowing against the fund for so long that no one wants to accept that the program is in such deep trouble that changes to the program aren't just inevitable but are necessary far sooner than anyone wants to admit.

As I've previously pointed out, the best way to deal with this mess is to index the benefits to age groups. It wouldn't necessarily require a reduction in benefits expected, although depending on just how dire the financial situation is with the fund, that too may be necessary. The problem is that politicians on both sides of the aisle are predisposed to doing nothing about the fund since any changes are likely to bring about a firestorm of controversy.

I think there should be a bigger firestorm of controversy over the fact that no one is doing anything to bring fiscal sanity to the Social Security system and that it is all too likely to be insolvent before long. Moreover, the changes I propose wouldn't actually harm anyone on the cusp of taking benefits now, and that people would be able to build the changes in to their own financial planning well in advance.