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.