While the future ramifications of the pandemic remain uncertain, it has apparently had an impact on the long-term financial position of Social Security trust funds.
According to the annual report of the Social Security Board of Directors published on August 31, the combined asset reserves of the trust funds for old age and survivors insurance and invalidity insurance (AVS and AI) are expected to run out. 2034, a year earlier than projected last year. If Congress did not act first, there would be sufficient income to pay only 78% of the expected benefits at that time.
The AVS trust fund, which pays retirement and survivor benefits, is expected to run out in 2033, a year earlier than last year’s estimate, with 76% of benefits payable at that time. the. The DI trust fund, which pays disability benefits, is expected to run out in 2057, eight years earlier than last year’s estimate, with 91% of benefits still payable.
A summary of Social Security and Medicare annual reports explains that the data and projections presented include administrators’ best estimates of the effects of the COVID-19 pandemic and the 2020 recession, which were not not reflected in last year’s reports. He notes, for example, that the finances of both programs have been significantly affected, as employment, incomes, interest rates and GDP have fallen significantly in the second quarter of 2020. And although these economic indicators are expected to increase gradually towards a full recovery by 2023, the assumed worker productivity level and GDP are set to be permanently lowered by 1%, even as they are expected to resume their pre-pandemic trajectories, the summary notes.
Trustees also forecast high mortality rates from the pandemic through 2023, as well as reductions in immigration and childbearing in 2021-2022 from levels projected in the 2020 reports. “The Trustees’ projections in this year’s report include the best estimates of the effects of the COVID-19 pandemic on the social security program, “Acting Social Security Commissioner Kilolo Kijakazi said in a statement. “The pandemic and its economic impact have had an effect on social security trust funds, and the future course of the pandemic is still uncertain. Yet social security will continue to play an essential role in the lives of 65 million beneficiaries and 176 million workers and their families in 2021. “
Annual costs and deficits
Other key findings show that the total annual cost of the social security program is expected to exceed total annual income – for the first time since 1982 – in 2021 and remain higher throughout the 75-year projection period. As a result, asset reserves are expected to decline from 2021 and every year thereafter.
Other findings of the report include:
- The total income, including interest, of the combined AVS and IA trust funds was $ 1,118 trillion in 2020 ($ 1,001 trillion in net social contributions, $ 41 billion in taxation of benefits and $ 76 billion in interest).
- The total expenditure of the combined OASI and DI trust funds amounted to $ 1.17 trillion in 2020.
- Social Security paid out benefits of $ 1,096 billion in calendar year 2020. There were about 65 million beneficiaries at the end of the calendar year.
- The projected actuarial deficit over the long-term 75-year period is 3.54% of taxable payroll, more than the 3.21% projected in last year’s report.
- In 2020, around 175 million people had income covered by social security and paid social charges.
- The combined asset reserves of the Trust Fund have borne interest at an effective annual rate of 2.6% in 2020.
The board typically consists of six members, four of whom serve by virtue of their position in the federal government: Treasury Secretary Janet Yellen; Acting Social Security Commissioner Kilolo Kijakazi; the Secretary of Health and Social Services Xavier Becerra; and Labor Secretary Martin Walsh. The two public trustee positions are currently vacant.
Administrators point out that lawmakers have many policy options that would reduce or eliminate long-term funding gaps for Social Security and Medicare. “Lawmakers should address these financial challenges as soon as possible. Acting as soon as possible will allow a wider range of solutions to be considered and allow more time to gradually introduce changes so that the public has enough time to prepare, ”they conclude.
Reports from the Social Security and Medicare Trustees are available here.