Earlier this month we received good news about the long-term solvency of Social Security.
According to the analysis just published, the Social Security Old Age and Survival Insurance Trust Fund (OASI) will remain solvent for one more year than previously thought. This is the trust fund from which Social Security benefits are paid.
In turn, this analysis suggests that some of the worst nightmare scenarios will fail to convey how the COVID-19 pandemic would affect social security.
This new analysis was produced by the Congressional Budget Office (CBO), the nonpartisan agency that analyzes the budgetary impact of various legislative proposals. To put their findings in context, it is useful to recall that each year the office of the principal actuary of Social Security updates its assessment of the solvency of the OASI trust fund. Its annual report is usually published in the spring.
However, no such report has been published. In an email, the principal actuary’s office told me that the decision on when to publish its annual report is not its own, but is made by the U.S. Treasury Department. An email earlier this summer to this department asking when this report will be published went unanswered.
Therefore, OBC analysis may be our best alternative. In last year’s report, the OBC estimated that the OASI trust fund would be exhausted in 2031. According to its new analysis, this depletion date is now a year later, in 2032.
This is the good news.
You can object, of course. Regardless of whether the expiration date is 2031 or 2032, it still means Social Security will run out of money in about a decade. You may find it difficult to put a lipstick on this pig.
But keep in mind that in the dark days of spring and summer 2020, some organizations projected that due to the numerous economic and demographic repercussions of the COVID-19 pandemic, the OASI trust fund would be depleted by 2026. .
Solace is also provided by focusing on the overall picture of Social Security finances. We have known for decades that the OASI would run out by the mid-2030s. This was the projection made by Social Security actuaries in 1983, the last time modifications were made to strengthen the system’s finances. And its projection has proven to be extraordinarily accurate.
Therefore, the financial media hurts retirees when they report breathlessly that Social Security is running out of money. While it is true that the OASI Trust Fund will run out sometime in the 2030s, it is not news.
Almost all of the congressional observers I interviewed find it inconceivable that our politicians would let the OASI trust fund run out. But they admit Congress is likely to wait until the last minute to bolster the trust fund’s finances. This is what happened in 1983, after all, when Congress finally did not make the necessary changes until just a couple of months before the fund ran out of money, despite having known for many years before they had. to make changes.
Also, it’s worth remembering that even if the trust fund runs out, Social Security beneficiaries will still receive most of the benefits they would otherwise be entitled to. For example, the CBO predicts that by 2033 — the first year the OASI trust fund would run out — recipients would still reap 72% of their profits.
Also, according to Martha Shedden, it’s not clear that you need to change your financial plan for retirement, even if you think Congress would let the OASI trust fund run out. Shedden, of course, is a co-founder and president of the National Association of Registered Social Security Analysts. In an interview, he said that even if only 72% of scheduled benefits are paid, Social Security will continue to be the main source of income for many, if not most, retirees.
As always, he added, it is important to run the numbers using a program that takes into account the myriad of possibilities. Suppose only 72% of Social Security benefits are paid from 2033 and see what happens. Given the assumptions you make into the software, you may think it’s best to start receiving your Social Security benefits at full retirement age (currently 66) instead of waiting until you’re 70 years old.
However, you may not. This is the conclusion I came to when I published the numbers of a single woman, who is currently 66 years old. Assuming he will live 20 more years, which is the average according to the actuarial tables of the Social Security, he will receive more Social Security benefits throughout his retirement waiting until the age of 70 to start receiving, even if he only receives 72% of ‘these benefits from 2033.
In the meantime, we can do something productive: contact your political representatives and urge them to address Social Security finances sooner rather than later. This is because the longer it takes Congress to consolidate the Social Security trust fund, the more difficult it will be.
Mark Hulbert regularly contributes to MarketWatch. His Hulbert Ratings keeps track of investment newsletters that pay a fixed fee to be audited. You can contact him at [email protected].