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3 Key Takeaways From the 2014 Social Security Trustees Report

Source: Office of the Inspector General, Social Security Administration.

Every year, the trustees responsible for the Social Security program are required by law to submit their annual report by March 31. Almost four months late, the 2014 Social Security Trustees Report finally got released, and inside the 258-page document (link opens PDF), you'll find vital information about the health of Social Security and the sustainability of the benefits you receive now or will receive in the future. Let's take a look at a few of the key takeaways from the 2014 Social Security Trustees Report.

1. Social Security's coming financial crisis is still on target
This year's Social Security Trustees Report confirmed prior expectations about when the program's trust funds will start to run out of money. For the Old Age and Survivors side of Social Security, the trustees expect that the program will be able to pay full benefits until 2034. After that, the Social Security Trustees expect that taxes will be sufficient to pay 77% of benefits, even if lawmakers make no changes to the program.

For the Disability Insurance portion of Social Security, though, potential problems are more imminent. The Disability Trust Fund will run out of money in 2016, which is also consistent with expectations from previous years. In part, the trend hurting the disability side of Social Security stems from the fact that the aging Baby Boom generation reached its peak disability years before it reached its normal retirement age, and analysts hope that as more Baby Boomers retire, it will ease the burden on the Disability Insurance program. The Social Security Trustees Report noted that if funds are moved between the two halves of the program, then the combined trust funds could sustain all of Social Security through 2033.

2. Social Security fixes are still possible
Given the potential consequences of failing to act, the obvious question is what it will take to fix Social Security. The 2014 Social Security Trustees Report outlines some possible solutions that would return Social Security to solvency for the next 75 years.

Under one scenario, the trustees suggest that raising payroll taxes by 2.83 percentage points would be sufficient to close the gap and provide full benefits to all retirees and other Social Security recipients from now through 2088. That would take the current employee Social Security payroll tax up from 6.2% to 7.61%, with employers shouldering a similar increase in their burden.

Alternatively, cuts in benefits could be made now. A reduction of 17.4% would be adequate to close the gap if it applied to all recipients, both current and future. If the reductions were limited to those not yet receiving benefits, it would require a 20.8% cut. Lawmakers could also use a combination of the two methods to bridge the gap and keep Social Security solvent.

3. Optimists still believe Social Security could avoid a crisis.
Even with the headline numbers indicating that Social Security will run out of money, the Social Security Trustees Report admits that the future is still uncertain. Under different sets of assumptions, the report includes scenarios that would lead to insolvency as early as 2028. By contrast, at least one projection -- which includes greater fertility rates in the future, a slower increase in life expectancy, and higher interest rates, wages, and employment rates -- has the Social Security Trust Fund never running out of money.

The Trustees Report, however, warns that those optimistic scenarios are highly unlikely. Based on its models, the report puts the greatest odds of Social Security running out of money between 2028 and 2044, with only a 5% likelihood that the actual date would fall outside of that range.

Despite the long wait, the 2014 Social Security Trustees Report didn't really give its readers any great surprises. Nevertheless, with information you need to know in order to plan for your retirement, the report is invaluable in helping you come up with realistic expectations about Social Security's future.

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Read/Post Comments (6) | Recommend This Article (20)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 30, 2014, at 4:32 AM, TrumanTrout wrote:

    In my opinion, any discussion of Social Security funding should begin with the effect of removing the cap on taxable wages. I find it highly unfair that McCEO pays a negligible percentage of income while McMinimumWage pays a significant percentage of income. Of course, McCEO is wily and will shift compensation away from wages to avoid taxation, but removing the cap would still go a long way toward fixing the problem. And flat tax fans should love it! (Right, flat tax fans?)

  • Report this Comment On July 30, 2014, at 3:45 PM, XXF wrote:

    Does McCEO's benefits go up comparably or do you just want to bleed the "rich" to transfer more money to the poor? If his benefits go up as well it isn't much of a long term solution. If it's just another redistribution scam why don't we just run that through one of the multitude of other programs? BTW, how does this affect pass through entities?

    Payroll taxes are incredibly stupid to begin with, expanding them isn't the place any discussion should start.

  • Report this Comment On July 30, 2014, at 7:06 PM, mrspeabody wrote:

    You can look at removing the cap on taxable wages as "bleeding the rich" or as removing the "bonus" the rich get on not having all their income taxed for Social Security.

  • Report this Comment On July 31, 2014, at 10:21 PM, RxPro wrote:

    My fix: let me opt out to have my taxes reduced (not completely eliminated) by proving that I am saving independently for my retirement and require that whatever %reduction economists decide on must be added to a 401k/IRA.

    This helps everyone. I pay less taxes AND have my savings paid into a deductible retirement plan in MY OWN account AND social security still gets some taxes from me with no obligation to pay me in the future. If a lot of people opt out and pay (lets say) 50% of the current SS tax rate, SS would stay solvent for much longer.

  • Report this Comment On August 04, 2014, at 5:43 PM, dreamimmigrant wrote:

    Bernie Madoff called it exactly what it is - a Ponzi Scheme and who better knows what a Ponzi Scheme is than Bernie Madoff. It's not even an annuity. It's a ponzi scheme and we all know this ponzi scheme won't last forever.

    Here's a simple fix - return my money and let me opt out from this ponzi scheme. Here's proof that I'm better with my money than these extortionists - I have a 30% savings rate.... what's the governments savings rate? -30%???

    What a rip-off!

  • Report this Comment On August 06, 2014, at 7:57 AM, investomania wrote:

    With less social security, the US would end up paying more to combat elder crime, deal with the homeless aged population, and a whole slew of problems that would arise.

    Don't opt out, unless you're leaving the country and won't have to deal with the fallout.

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Dan Caplinger
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Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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