Rash of retirements push Social Security to brink
Social Security’s annual surplus nearly evaporated in 2009 for the first time in 25 years as the recession led hundreds of thousands of workers to retire or claim disability.
The impact of the recession is likely to hit the giant retirement system even harder this year and next. The Congressional Budget Office had projected it would operate in the red in 2010 and 2011, but a deeper economic slump could make those losses larger than anticipated.
“Things are a little bit worse than had been expected,” says Stephen Goss, chief actuary for the Social Security Administration. “Clearly, we’re going to be negative for a year or two.”
Since 1984, Social Security has raked in more in payroll taxes than it has paid in benefits, accumulating a $2.5 trillion trust fund. But because the government uses the trust fund to pay for other programs, tax increases, spending cuts or new borrowing will be required to make up the difference between taxes collected and benefits owed.
Experts say the trend points to a more basic problem for Social Security: looming retirements by Baby Boomers will create annual losses beginning in 2016 or 2017.
Social Security took in only $3 billion more in taxes last year than it paid out in benefits — a $60 billion decline from 2008, according to federal data. The slide in revenue occurred sooner than Social Security actuaries had expected, for three reasons:
• Payroll tax revenue that was growing at a 4.5% average annual clip along with wages flattened out in 2009 because of rising unemployment and pay raises that largely disappeared.
• The number of retired workers who began taking benefits increased by 20%; those taking disability jumped by 10%.
• Monthly benefits were raised 5.8% because of a spike in energy prices the year before.
Social Security was saved from bankruptcy in 1983 by a bipartisan deal that increased payroll taxes, taxed some benefits and gradually raised the retirement age to 67. That was supposed to keep the system solvent at least until 2058, but the projection has slipped to 2037.
The impact of the recession shows that “for all these projections, unexpected things happen,” says Maya MacGuineas of the Committee for a Responsible Federal Budget.. “Money has to be found to repay those trust funds.”
President George W. Bush proposed voluntary private retirement accounts in 2005, but the effort stalled in Congress. President Obama has proposed giving Social Security and other thorny fiscal issues to a bipartisan commission.