What “Exhausted” Means for Social Security

We had a reader respond to our last post on the trustees report about Social Security.  In that post, we mentioned that the trustees are projecting that the Social Security “pension” fund will be “exhausted” by 2033, three years ahead of previous projections.

Social Security is form of a pension plan and it has three major components that make up the fund.  Two are positive and one is negative.  The positive items are contributions (i.e. FICA taxes) and earnings.  The negative is benefits paid out.  Right now, the social security fund has about $2.7 trillion in its fund.

The trustees project that more revenue will come into the fund (taxes and earnings) than is being paid out through the year 2021 or so.   This will result in the fund increasing to almost $3.1 trillion.  Beginning in 2022, the benefits being paid out will start to exceed the amount of income coming in and this deficit will increase each year.  The trustees are projecting that the surplus of $3.1 trillion will be completely gone by 2033.

It is at this point where the fund is “exhausted”.  After that year, the money coming in will not be enough to cover the money going out and the fund will run at a deficit which will be covered in some way.  Either directly by additional taxes being paid by the employers, employees or the taxpayers or a cut in benefits or some combination of both.

The trustees would like to see this happen now and not in 2033 when it is too late.

Paul Neiffer, CPA