An annual checkup of Social Security's finances found that the program has enough resources to pay out scheduled benefits until 2033, the same year predicted in last year's report. After that, Social Security will only take in enough tax revenue to pay out 77 percent of promised benefits. Here's what you need to know about the financial health of the Social Security trust funds:
Income. An estimated 163 million people paid Social Security payroll taxes in 2013. Most workers contribute 6.2 percent of their earnings to the Social Security system, up to $113,700 in 2013, and employers pay a matching 6.2 percent for each worker. Self-employed workers must contribute 12.4 percent of their paychecks. These payroll tax contributions amounted to 726.2 billion in 2013. The total income of $855 billion also included 21.1 billion from the taxation of benefits and $103 billion in interest earnings. The trust fund reserves, which are invested in U.S. Treasury securities, earned 3.8 percent interest and grew from $2,732 billion in 2012 to $2,764 billion by the end of 2013. The trust fund is expected to continue to grow through 2019 and reach $2,878 billion at the beginning of 2020.
Expenses. Social Security provided payments to about 58 million people in 2013. The Social Security system spent $823 billion, most of which was paid out in benefits (812.3 billion) or used for administrative expenses (6.2 billion). Administering the program cost 0.7 percent of total expenditures in 2013.
Projected deficit. Beginning in 2020, the cost of paying out benefits is expected to exceed tax and interest revenue and the trust funds will be used to pay out benefits. The trust fund balances are projected to decline to $2,698 billion by the end of 2023 and be depleted in 2033. At that time tax revenue is projected to be sufficient to pay out 77 percent of scheduled benefits.
Shifting demographics. There were about 2.8 workers for every Social Security recipient in 2013, but there is only expected to be 2.1 workers for every beneficiary in 2035. "The retirement of the baby boom generation will increase the number of beneficiaries much faster than the number of workers increases, as subsequent lower birth rate generations replace the baby boom generation at working ages," according to the Social Security Board of Trustees report. "The ratio of workers to beneficiaries reaches 2.1 by 2035 when the baby boom generation will have largely retired, with a further gradual decline thereafter due to increasing longevity."
Potential fixes. There are a variety of ways to prevent the trust funds from running out of money within 20 years, including a tax increase, benefit cut or combination of the two approaches. The Trustees calculated that an immediate 1.4 percent payroll tax increase for both workers and employees (2.83 percent for the self-employed) would make the program solvent for at least 75 years. A benefit reduction of 17.4 percent for all current and future beneficiaries or a 20.8 percent decrease for people who become eligible for benefits in 2014 or later would also fix the problem. "Implementing changes soon would allow more generations to share in the needed revenue increases or reductions in scheduled benefits," the report found. "Much larger changes would be necessary if action is deferred until the combined trust fund reserves become depleted in 2033."
More From US News & World Report