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As Social Security faces insolvency, these are key factors to watch

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A new report from Social Security administrators released Monday provides a modest bright spot for the program.

The program’s combined funds are now expected to run out in 2035, a year later than expected. At that time, 83% of benefits will be payable, unless Congress takes action before then to prevent widespread benefit reductions.

The later projected depletion date is due to an improving economy, according to the trustees’ report. This includes higher labor productivity that allows workers to contribute to the program through payroll taxes.

But experts say that’s where the good news ends, and the trustees’ report’s revelations underscore the need for congressional action.

“Unless something changes the economy more quickly or dramatically, we’re going to see a depletion of trust funds in the next 10 years,” Jason Fichtner, chief economist at the Bipartisan Policy Center, said on a panel Tuesday by the Committee for Responsible Politics. Federal budget.

Social Security Trust Fund Expected to Be Depleted by 2035, U.S. Treasury Says

The trust fund deficit could be filled through tax increases, benefit cuts or by dipping into general revenue, he said.

While the national debt stands at $34 trillion, Social Security’s unfunded liability stands at about $22 trillion, Fichtner said. To make the program solvent for 75 years, an initial sum of $22 trillion would be required today.

“That’s a lot of borrowing,” he said.

The longer lawmakers wait, the bigger the changes needed.

Because it’s an election year, there probably won’t be any action now, said Max Richtman, president and CEO of the National Committee to Preserve Social Security and Medicare, in a interview. But Social Security is poised to become an issue in upcoming House, Senate and presidential campaigns, he said.

Here are some key revelations to note from this year’s Social Security trustees’ report.

1. Retirement fund exhaustion date is less than a decade away

Although the overall outlook for Social Security trust funds has improved, the exhaustion date for the fund used to pay retirement benefits remains unchanged.

By 2033, this fund will be exhausted, at which point 79% of benefits will be payable.

As the depletion date gets closer — just nine years away — there are fewer factors that could change that forecast, Fichtner said.

2. The disability fund is in good shape – for now

A separate trust fund used to pay disability benefits is expected to be able to pay benefits in full through 2098, the final year of the report’s projection period.

The good news is that this indicates that fewer disability benefits are being paid out of this trust fund, Laura Haltzel, a Social Security expert and former research director at the Congressional Research Service, noted during the webinar. Because these people are still in the workforce, that means they continue to contribute to the program, she said.

But that fund is “very, very sensitive to economic conditions,” Fichtner said.

In the event of a major recession, many marginalized workers could apply for disability benefits, he said. This may affect the solvency of that trust fund.

“I don’t think we should say (disability insurance) is a good thing and we’re in the woods,” Fichtner said. “We need to keep an eye on it.”

3. The projection of insolvency has not changed

Since 2012, Social Security administrators predicted that the insolvency date would be between 2033 and 2035.

Because the board’s new report projects that the combined funds could last until 2035, that hasn’t changed, Haltzel noted.

“The actuarial deficit hasn’t really changed much,” Haltzel said.

4. A drop in the birth rate can impact the program

Social Security administrators revised the assumption of a total fertility rate to 1.9 children per woman, from 2.0, which is the lowest ever assumed, senior Treasury officials noted.

The birth rate is an important part of long-term projections, Linda K. Stone, a senior retirement fellow at the American Academy of Actuaries, said in an interview with CNBC.

“It will take 20 years, 18 years for the children being born today to actually become workers and pay taxes in the system,” Stone said.

5. Immigration can help boost the program

Immigration can help attract more workers to help pay taxes under the program.

“Immigration absolutely can and should be part of the solution,” Haltzel said.

Legal immigration is preferable, she said, but the effects of illegal immigration on the program are often misunderstood.

Many illegal immigrants tend to adopt a fake Social Security number, she said. Although they pay into the program through payroll taxes, they are not eligible to claim benefits.

“In fact, we end up benefiting in a very unfortunate way from illegal immigration,” she said.

Immigrants may also have a higher birth rate, Stone said.

“That means more future workers are also coming into the system,” she said.

6. More radical changes will be necessary over time

As lawmakers procrastinate when it comes to addressing Social Security, the solutions needed to address the program are becoming more dramatic.

During President Barack Obama’s presidency, removing the maximum threshold on taxable income would have restored the program’s solvency over 75 years, Fichtner said.

Now, a combination of changes would be needed to achieve the same results. A suggestion that comes up often is to raise the retirement age.

“We have lost our one-and-done policy options,” Fichtner said.

On Capitol Hill, Social Security tends to become a partisan battle, Richtman said. But most Americans want the advantages they have earned to be preserved.

Voters should ask candidates where they stand on the issue, Richtman said.

“In theory, everyone is for social security. But what are your positions to guarantee its sustainability and improvement?” » Richtman said. “That’s the real question.”

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