Social Security’s shrinking trust fund – so what?

No surprise: The Social Security headache is one of the SOA’s top retirement stories of 2011:

When it was created in 1935, the fundamental principle behind Social Security was that the feds would take a few dollars from everyone’s paycheck, promising to pay it back once you reached retirement age – a “forced” retirement savings plan of sorts. At that point, the workforce was big and the number of older workers was small, so everyone assumed the program could continue indefinitely. However, the Social Security trustees issued a warning early in 2011 that “on its current course, the retirement fund would be empty by 2037.”

A bit misleading to say Social Security’s trust fund will be empty in 2037. That makes it sound like grampa’s check will fall to zero. It won’t.
If the trust fund runs dry, retirement benefits will come from current SSDI contributions. These will allow benefits to continue at 78% of the promised amount. More here.
It’s also important to remember that having a big fat trust fund was the solution enacted in the 1980s to pre-fund Baby Boomer retirements. The fund was designed to fall toward zero as baby boomers retired. After they died, Social Security would be funded through ongoing contributions, as it had been for its first 4+ decades.
So there’s nothing wrong with the trust fund approaching zero. However, it looks like the fund will hit zero too soon, and that would be a problem.
The projected shortfall is an important public policy issue, but I think the SOA should be careful to characterize it in the proper perspective.

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