The long-term funding outlook for Social Security's retirement and survivor benefit programs has improved slightly, while the timing of the depletion of the disability program's reserves was extended by 20 years, according to the 2019 trustees' report released Monday.
In theory, the combined Old-Age and Survivors Insurance (OASI) and the Disability Insurance (DI) Trust Funds are now projected to be depleted in 2035, one year later than projected last year, with 80% of benefits payable at that time. But much of that one-year extension was due to the improvement in the disability trust fund's prospects.
And although the total annual cost of the Social Security program was expected to exceed total income last year for the first time since 1982, that didn't happen. Asset reserves in the combined OASI and DI trust funds increased by $3 billion in 2018 to $2.895 trillion.
But that doesn't mean the program has resolved its long-term financing problems. It just kicked them down the road a bit.
The total annual cost of the program is now projected to exceed total annual income in 2020 and remain higher throughout the 75-year projected period. As a result, total asset reserves are expected to decline during 2020. Social Security costs have exceeded its non-interest income since 2010.
The retirement and survivors' trust fund is still expected to be depleted in 2034 — the same forecast as last year — but the amount of benefits that would be payable at the time has slipped to 77%, down from last year's projection of 79%.
That means if Congress does nothing between now and 2034, there would be sufficient assets from ongoing payroll taxes to pay 77% of promised benefits. In other words, benefits would be cut across the board by 23%.
"The Trustees recommend that lawmakers address the projected trust fund shortfalls in a timely way in order to phase in necessary changes gradually and give workers and beneficiaries time to adjust to them," said Nancy Berryhill, acting commissioner of Social Security.
"The large change in reserves depletion date for the DI Fund is mainly due to continue favorable trends in the disability program," Ms. Berryhill said. "Disability applications have been declining since 2010 and the number of disabled-worker beneficiaries receiving payments have been falling since 2014."
Other highlights of the report include:
• Total income, including interest, of the combined OASI and DI trust funds amounted to just over $1 trillion in 2018, including $885 billion from net payroll tax contributions, $35 billion from taxation of benefits and $83 billion in interest income. Total expenditures from the combined OASI and DI trust fund amounted to $1 trillion in 2018.
• Social Security paid benefits of nearly $989 billion to 63 million people in 2018. During that same period, 176 million people had earnings covered by Social Security and paid payroll taxes.
The projected deficit over the 75-year long range period is 2.78% of payroll, a slight improvement over the 2.84% projection in last year's report. That means that bringing the Social Security program into financial balance for the next 75 years would require increasing payroll taxes immediately by 2.78%, or 1.39% each for both workers and employers.
Currently, workers and employers each pay 6.20% of payroll on the first $128,400 of earnings to fund Social Security and an additional 1.45%, evenly split, to fund Medicare, for a combined payroll tax of 7.65%. Self-employed individuals pay both portions of the payroll tax for a combined rate of 15.3%.
The 1.45% Medicare portion of the payroll tax applies to all wages; people with high incomes (individuals earning $200,000 and married couples earning $250,000) pay an additional 0.9% in Medicare taxes.
The Medicare Hospital Insurance program remains on track to meet its obligations to beneficiaries through 2026, the same projection as last year's report.
"Both the Medicare and Social Security programs remain secure as the financial outlook for both is not materially different from last year's outlook," said Treasury Secretary Steven Mnuchin, a member of the Board of Trustees. "We remain committed to further bolstering the programs' finances, which will benefit from the long-term growth we will see as a result of the Administration's economic policies."