Social Security is facing $63 trillion in long-term unfunded liabilities, according to the 2024 Old-Age, Survivors, Disability Insurance (OASDI) trustees report.
Officials explained that these numbers show how much less money they will have after the money saved up in trust funds runs out.
“The annual shortfalls after trust fund reserve depletion rise slowly and reflect increases in life expectancy,” the report reads.
“The summarized shortfalls over the infinite horizon, as percentages of taxable payroll and GDP, are larger than the shortfalls for the 75-year period.”
OASDI trustees noted that the shortfall could be eliminated if the combined payroll tax rate was raised to “about 17.0 percent” or if there was a “permanent reduction in benefits for all current and future beneficiaries by about 26.5 percent.”
Laurence Kotlikoff, professor of economics at Boston University, told The Epoch Times that assessing the current infinite unfunded liability is imperative.
“There’s nothing in economics that says you should just look at 75 years and assume everybody’s going to be dead the day after,” Kotlikoff said.
“It’s like operating on half of the cancer, removing half a cancer, and telling your patient to come back in 10 years, and when they do, it’s twice as big, and you’re operating out on half.
“[That’s] the practice here in our country dealing with Social Security.”
This is not the first report to spotlight the deteriorating fiscal state of the retirement scheme and other federal programs.
It concluded that U.S. taxpayers face more than $78 trillion in long-term unfunded obligations for Social Security and Medicare.
The problem, according to Mark Warshawsky, a senior fellow at the American Enterprise Institute, is that these outlooks are based on rosy scenarios, meaning that the United States will not grapple with a financial crisis, a major military conflict, or another pandemic.
Still, it is valuable to disseminate these numbers to the public, according to Warshawsky.
“Despite its faults, the undoubtedly large effort needed to produce the [Financial Report] annually is worthwhile and it should get more attention from policymakers, the media, and the public,” he said.
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Additionally, the Disability Insurance Trust Fund balance could run dry by 2064.
Over the years, lawmakers on both sides of the aisle have presented a series of solutions to rescue Social Security.
President Joe Biden and other Democrats have said that ensuring that the “highest-income Americans pay their fair share” is a feasible response to the looming funding shortage for the top retirement programs.
Calls to Embrace Reform
But many economists and financial experts say that public policymakers need to embrace reform.“What we need is not just a smart Social Security fix, but we need to have a radical reform of our fiscal system,” Kotlikoff said. “It’s not doodling around the current system.”
Indeed, he has proposed several different measures that Washington could institute to keep the Social Security system intact through what he calls a “Personal Security System.”
Kotlikoff has recommended phasing out the existing Social Security system while paying off all accrued obligations to current retirees and workers and “replacing it with a fully funded, progressive retirement account system.”
As for immediate solutions, Doug Carey, a chartered financial analyst, said a change to the payroll tax would be appropriate, although it would be hard to pass in Congress.
“Currently, the payroll tax for both employees and employers is 6.2 percent for Social Security,” Carey told The Epoch Times.
“Increasing this rate would help with the solvency of the trust fund but would be difficult to pass in Congress since it would raise taxes on most people.”
Another policy adjustment, according to Carey, is increasing the payroll tax cap.
“This is the most popular idea,” he said.
“Currently, only earnings up to $168,600 are subject to Social Security taxes. Raising or completely eliminating this limit would go a long way toward increasing the solvency of the trust fund.
“It is also more likely to pass Congress since it only hits a small percentage of workers.”
Revisions to methodology could also serve as a prescription to help keep Social Security afloat, according to Tyler Meyer, a certified financial planner and the owner of QED Wealth Solutions.
“Another approach is to modify the benefit formula to slow the growth of benefits for higher earners while protecting lower-income beneficiaries,” Meyer told The Epoch Times.
Are Benefits Enough?
Estimates suggest that the Social Security cost-of-living adjustment (COLA) for 2025 will be close to 2.6 percent.In today’s inflationary environment, are benefits enough?
Researchers found that, on average, retirees would need to receive a $4,440 annual boost—or $370 per month—“to rebuild their lost value.”
“The reality is that COLAs have become less and less likely to match inflation over time,” the report reads.
“In the 1990s and 2000s, 60 percent of COLAs beat inflation. In the 2010s, only 40 percent did. Through the 2020s so far, only one COLA out of five [2023; 8.7 percent] has done so.”
“Social Security is normally an important part of the guaranteed income portion of the plan as a means to cover essential expenses,” Stephen Kates, principal financial analyst for Retire Guide, told The Epoch Times.
“In the absence of Social Security, retirees will need to replace it with other sources of guaranteed income like pensions or annuities.
“A key consideration for retirees is the ability to cover all essential expenses with guaranteed income.”
For workers engaged in planning their retirements, it is vital to work with a financial adviser for guidance on how to turn savings into an income plan.
“With less Social Security income, your retirement plan may need adjusting, and burying your head in the sand will not help,” Kates said.