The future of Social Security in 10 charts

The coronavirus is likely to speed up the insolvency of the Social Security program, but that doesn’t mean it will fundamentally alter its outlook.

“What this crisis has shown once again is that we don't want to cut back on Social Security benefits,” says Alicia Munnell, director of the Center for Retirement Research at Boston College. “It doesn't change the message very much in the sense that this is the most important program for Americans, and it should be financially secure.”

In 15 years, the roughly $3 trillion in the program’s trust fund will be depleted and payroll tax revenues will cover only 79% of legislated benefits, Munnell wrote after Social Security trustees issued their 2020 report on the financial footing of the program. The trustees compiled their data before the U.S. outbreak of COVID-19.

The crisis could accelerate insolvency by reducing payroll tax revenue and pushing up disability claims, among other factors, according to the nonpartisan Committee for a Responsible Federal Budget. Falling average wages this year could also slash benefits for 60-year-olds permanently in the future due to the formula for calculating them, Munnell points out.

Yet Congressional action could avert cuts and fix the program’s long-term solvency. Increasing the cap on taxable wages, including health insurance benefits in the tax base or — in the most regressive solution — hiking the payroll tax by 1.6 percentage points on employees and employers would make Social Security solvent for the next 75 years, Munnell says.

Though the 75-year deficit projection rose in 2019, before the pandemic, finding revenue to make up the shortfall remains a “manageable exercise,” she says. Letting the issue linger for another decade or so would result in a benefits cut of about 25% in 15 years.

“Every time we have a catastrophe like this, Social Security demonstrates its worth,” Munnell says. “It's a stabilizing force, it's something that people can absolutely rely on.”

To see the latest figures on the program’s financial outlook, scroll down. For more on the 2020 trustees report and the potential impact of the coronavirus, click here.

Deficit projection rises by highest amount since 2012
The repeal of the Affordable Care Act’s excise tax on “Cadillac” healthcare plans, reduced fertility rates and lower interest and inflation rates pushed the 75-year shortfall above 3% of taxable payrolls for the first time in the program’s history.
What factors most drove up the rising deficit last year?
Statistical assumptions about demographic and economic metrics caused the majority of the higher deficit projection, followed by the repeal of the Obamacare provision.
What factors have caused the rising deficit in the past 40 years?
The valuation period covered in the 75-year span changes each year, thereby adding ones on the back end that have large negative balances, according to Munnell’s research. The Great Recession and other economic modeling that assumes a drop in productivity growth represents the second largest source of the deficit.
Costs are on the rise
In dollar terms, a 75-year shortfall of $16.8 trillion is a lot of money. In terms of the cost as a percentage of gross domestic product and taxable payroll, it’s still a lot of money. Still, as Munnell points out, the economy will also be expanding over that time frame. The comparison to GDP will stay nearly constant, while that of taxable payroll will go up as its share of total compensation declines over time due to the rising cost of health and retirement benefits.
The fundamental equation
Lower fertility rates combined with higher life expectancies equals fewer workers and more retirees. The Great Recession made it necessary to tap into the interest accruing on the trust fund earlier than anticipated, and the program will begin using direct trust fund assets next year, according to Munnell.
Why there are fewer workers
The ratio of workers paying into the system and retirees receiving benefits has fallen from 3x to 2x because of the combined impact of retiring baby boomers and lower fertility rates in the past 50 years.
Will there be a COLA in 2021?
The comparison of the consumer price index in the third quarter of this year with that of 2019 may well show no increase in 2020 and therefore no COLA in 2021. It would mark only the fourth year without a COLA since they were made automatic in 1975, according to Munnell.
Federal spending on Social Security
Social Security and Medicare represented 41% of all federal expenditures in 2019, according to the trustees.
Waiting longer to solve the problem costs more money
The nature of the Social Security shortfall means that any higher taxes or cuts to benefits will have to become steeper as time goes on. For example, it would take a payroll tax hike of 3.1 percentage points in 2020 or 4.1 in 2035 to make the program solvent for the next 75 years, according to the Committee for a Responsible Budget.
How much time until the trust fund gets exhausted?
Trust fund assets of about $3 trillion — or about two and ½ years of benefits — will run out in 15 years. The Great Recession put the kibosh on the surpluses that had created the trust fund after reforms introduced in 1983, according to Munnell. With the major caveat that it’s impossible to know the full impact of the coronavirus, her team calculated that the crisis could move up the depletion date by two years.

“It is close; people in their 50s have to start thinking about how much they're going to get,” Munnell says, emphasizing that the top priority right now for the country is responding to the coronavirus. “Then it's really time to turn to Social Security and put it on a firm financial footing.”