Is It Too Late to Save Social Security?

Practically everyone knows that Social Security, as currently funded and managed, is not financially sustainable.

The experts charged with overseeing Social Security have been forecasting funding shortfalls for years. The generation of workers who are providing the dollars to pay benefits to today’s Social Security recipients have been concerned for years that the program is not sustainable in its current form. The media have reported these serious concerns and elected representatives from every level of government know there’s a problem.

The Numbers Don’t Work Anymore

Unfortunately, neither the structural and systemic challenges facing Social Security for decades nor the widespread knowledge that Social Security is not financially sustainable have generated a politically persuasive demand for a comprehensive solution that would effectively fix the threats facing this indispensable program.

There are a variety of reasons why the great public need for solutions that work has not yet led to the political action required to get effective fixes. The most common explanation is that for more than forty years whenever it appeared that full benefit payments were in jeopardy, elected officials focused on and took action to make sure recipients got their monthly checks. The checks arriving produced a cognitive dissonance of sorts in which we all “know” there is a problem, but embrace the illusion that there are no consequences attached to the problem.

While that explanation may be comforting, it is also dangerous because it obscures the fact that the real problem is that the current decision-making process is not sufficiently informed to identify and/or pursue the systemic alternatives required to produce solutions that work.

Because we failed to address effectively the flaws eroding the structural stability of the program for decades, we have now reached a dangerous tipping point at which the possibility of very consequential cuts in benefits for both current and future retirees grows more real every day. Absent legislative changes, the OASI trust fund will be depleted sometime in 2033.  Under current law, when that happens all benefits will automatically be cut by at least 20%.  The table below shows there are over 55 million retirees and dependents currently receiving over $100 billion per month.  Studies have shown that for 40-50% of these recipients Social Security is their primary source of income; it is an important part of total income for over 80%.  In addition to threatening the near poverty status of 25 million or so individuals, there would be massive impacts on local communities throughout the country.  In Wisconsin alone, for example, the 20% cut would reduce total income by over $500 million per year [(2038+114)12.2].(See below)

In Wisconsin, the 20% reduction required by existing law in the case of insolvency would reduce the income of more than 1,100,00 people collectively by $500,000,000 annually.

The good news is that it’s not too late to make modifications that could sustain and return Social Security to its long-term objectives.

The search for an “effective fix” must involve a search for changes that recognizes the contributions made during  years of employment and addresses the economic needs of those contributors as they become beneficiaries, while simultaneously respecting the need to protect and grow the overall economy and to not adversely affect the general well-being of citizens of all generations.

Discussions that have erupted over the current deficit cash flow and the projected trust fund deficits fall into three potential categories, including:

1. benefit reductions;
2. increased taxes (or other revenue); and
3. restructured funding sources (e.g., creating pre-funding and opportunities for investment return contributions).

Due to the magnitude of the projected future deficits, odds are that the “solutions” we are looking for will likely include elements of at least two if not all these categories.  Since different changes within a category are likely to have varying impacts on the broader US economy, it is important that decision makers have access to tools which provide holistic analysis on any package of proposed changes.

CAUS and Solutions

The Concerned Actuaries of the United States (CAUS) was founded to, “Provide full, accurate, and easily understood analyses of the financial realities affecting the funding and security of our nation's public finance and social insurance programs.”  To those ends, CAUS has spent the past five years developing its uniquely advanced analytical capability (i.e.,  the Comparative Actuarial Assessment Model: CA2M)  to provide decision-makers timely, relevant, and powerful analysis of the likely holistic outcomes of the policy and operational options they are drafting and considering..

CAUS originally dedicated the CA2M to creating holistic analyses of the multiplying problems within the national healthcare system and has now prioritized measuring and evaluating proposals to address the healthcare challenges devastating rural America.

CAUS is now in the process of designing expansion of the CA2M to include Social Security.