With the exception of Medicare, most social programs pale in scope when compared with Social Security.
Each and every month, nearly 62.5 million people receives a benefit check from the Old-Age, Survivors, and Disability Insurance Trust (OASDI). Though most of these folks are aged beneficiaries, as we would expect, the program also provides a payout to more than 10 million people covered by disability insurance, and close to 6 million people eligible for survivor benefits.
In dollar terms, the program divvied out $81 billion to beneficiaries in June, according to the latest Social Security snapshot. Roughly three-quarters of this cash ($61 billion) went to retired workers, with the remainder split up among those receiving disability insurance, survivor benefits, and the spouses and children of retired workers.
Another Social Security milestone is just a year away
As the number of beneficiaries has grown in size, so have the checks that the Social Security Administration has had to write. In 2017, Social Security hit a never-before-seen milestone when its aggregate expenses surpassed the $1 trillion mark.
Now, keep in mind that this $1 trillion figure includes all expenses paid out from the OASDI Trust, as well as what was paid to the millions of folks receiving Supplemental Security Income. It also included about $10.9 billion in aggregate expenses pertaining to the Railroad Retirement Account and administrative expenses tied to running the program.
But if we were to look at things strictly from the perspective of OASDI payouts, next year is when the real trillion-dollar milestone mark will be hit.
According to the Social Security Board of Trustees report that was released in early June, scheduled OASDI benefits are expected to total $991.8 billion in 2018 and crest the $1 trillion mark to $1.05 trillion in 2019. These higher payouts are primarily a result of baby boomers leaving the workforce and entering retirement at a rate of roughly 4 million per year.
This isn't a milestone you'll want to celebrate
This isn't a milestone that we'll want to break out the champagne for.
Even though Social Security has demonstrated its ability to provide coverage for existing workers and a financial foundation for retirees for nearly eight decades, its scheduled benefits are growing at a much quicker pace than its revenue. After hitting a projected $1.05 trillion in scheduled benefits in 2019, the trustees' report estimates that they could top $1.3 trillion in 2023, $1.5 trillion in 2025, and $1.7 trillion by 2027, according to the intermediate-cost model.
These numbers get even scarier with the added context of estimated revenue collection. Despite $1 trillion expected to be brought in by Social Security's three sources of funding in 2018, revenue collection is expected to hit just $1.55 trillion by 2027. When adding in Railroad Retirement Account costs, as well as administrative expenses, the Social Security program could be staring down a net cash outflow of $122.4 billion to $169 billion a year between 2025 and 2027.
Who's ready for a benefits cut?
As you've probably guessed, widening net deficits each year won't be sustainable for Social Security over the long run. By 2034, all of Social Security's asset reserves -- currently $2.9 trillion -- are expected to be depleted.
The silver lining among all of this for seniors is that the program is in absolutely no danger of going bankrupt. The 12.4% payroll tax on earned income, and the taxation of Social Security benefits for folks making over a specific amount of adjusted gross income each year, will ensure that revenue continues to flow into the program.
The problem is that once Social Security's $2.9 trillion in asset reserves, which are currently invested in special-issue bonds, are exhausted, the current payout schedule becomes impossible to sustain. According to the trustees' report, an across-the-board benefits cut of up to 21% may be necessary to sustain payouts through 2092, without any additional benefit cuts. With more than three out of five aged beneficiaries reliant on Social Security as their primary source of income, such a scenario is downright terrifying.
In other words, Social Security is likely to hit a number of never-before-seen milestones in the years that lie ahead, but they're probably not going to be the type you'll write home about.