There simply isn't a social program in this country that has more importance to the financial well-being of our nation's retired workforce than Social Security. Each month, more than 43 million retired workers receive a Social Security benefit check, and three out of five rely on their payout to account for at least half of their income. Without this financial foundation, an analysis from the Center for Budget and Policy Priorities estimates that the retired worker poverty rate would more than quadruple.

And yet, even with the program's importance, Social Security faces an uncertain future.

A Social Security card standing up on a table with the name and number blurred out.

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A big benefit cut could be looming

According to the newest annual report from the Social Security Board of Trustees, released in June 2018, the program was set to hit an inflection point in 2018 (although we'll need to wait until the 2019 report to find out if that actually happened). More specifically, Social Security was estimated to expend more than it collects in revenue for the first time since 1982, creating a nominal net cash outflow of $1.7 billion. I say nominal because the program has almost $2.9 trillion in its assets reserves.

However, these outflows are expected to grow in size in 2020 and each subsequent year. By 2034, the Trustees project that Social Security's $2.9 trillion in asset reserves will be completely exhausted.

The silver lining for seniors is that Social Security doesn't need any excess cash in its coffers to continue to make payouts. This means, barring Congress adjusting how Social Security is funded, there's no chance of the program going bankrupt.

But it does clearly suggest that the current payout schedule isn't sustainable. By 2034, an across-the-board benefit cut of up to 21% may be needed to sustain payouts through the year 2092. That would be devastating to the aforementioned majority of retired workers who depend on their benefit as their primary income source.

A fanned pile of cash lying atop a fanned pile of Treasury bonds.

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A new petition offers a radical solution

It's no secret on Capitol Hill that Social Security is facing a challenging future, and lawmakers in Washington have proposed no shortage of fixes for the program. Unfortunately, the political divide between Democrats and Republicans is as wide as ever, meaning there's little chance of the two sides compromising and coming to a middle-ground agreement.

In lieu of this stalemate, The Seniors Center, a Washington, D.C.-based nonprofit organization, has released a radical plan that calls for three substantive changes to the Social Security program. These changes would:

  1. Create a true trust account that would ensure all payroll contributions are deposited for the payment of Social Security retirement benefits.
  2. End the practice of allowing the federal government to borrow Social Security's surplus to finance general expenditures.
  3. Legally require the U.S. Treasury to begin accelerated payments of funds taken from Social Security.

Essentially, this would transform the way the Social Security Administration invests the nearly $2.9 trillion in assets reserves -- special-issue Treasury bonds are currently purchased with Social Security's surplus cash -- and provide improved clarity on payroll tax dollars from paycheck to Social Security payout.

The Seniors Center has begun a Trust Fund Emergency Petition, which aims to collect 1 million signatures, of which, according to a Dec. 6 press release, 373,000 Americans had already signed. 

A visibly irritated senior man very focused on something.

Image source: Getty Images.

Despite growing support, this is a genuinely bad idea

Although I can appreciate grassroots movements and a new perspective on resolving the Social Security stalemate, the solution offered by The Seniors Center is a genuinely bad idea. Let's break this down point by point.

To begin with, the creation of a "true" trust account is unnecessary given that every cent that works its way into the Social Security program is accounted for. Less than 1% of all revenue collected is used for administrative expenses, meaning over 99% of collected revenue via payroll taxes, the taxation of benefits, and interest income winds up in the hands of eligible beneficiaries, which is where it belongs.

Furthermore, even though Social Security's annual expenditures are included in federal spending budgets, the program is its own separate entity. Funds collected via payroll tax, the taxation of benefits, and interest income, along with its nearly $2.9 trillion in asset reserves, are the only accessible funds that the Social Security Administration can use when disbursing payments. No "true" trust accounts need to be created, because they already exist.

As for the second point, ending the ability of Congress to borrow money from Social Security's asset reserves, which is a legal requirement, might I add, would be very bad. In 2017, Social Security generated $85.1 billion in interest income as a result of this borrowing. Over the next decade, more than $800 billion in interest income is forecast to be collected. If this borrowing source were suddenly removed, Social Security's problems would be further magnified, with a good likelihood that its asset reserve depletion date would be moved forward. In other words, it would just mean pain even sooner for retirees reliant on Social Security.

The third point, which calls for accelerated payouts of funds taken from Social Security, is also a poor idea. Aside from depriving the program of much-needed interest income, requiring the government to suddenly repay its legally required net surplus borrowing would mean issuing more debt. Already facing nearly $22 trillion in national debt, such a plan could balloon the national debt level and remove a readily available source of funding for general federal expenditures.

There's no doubt that a fix is needed to support Social Security for future generations, but it would be best served if it were of the bipartisan variety and tackled some of the biggest problems with the program.

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