Why Social Security Looks 'Relatively Good'

In a post-mortem of the Social Security Trust Fund report released Thursday, the Bipartisan Policy Center hosted a webinar featuring speaker Steve Goss, chief actuary of the Social Security Administration. Goss looked beyond the headlines stating that the Old-Age and Survivors Insurance will run out in 2034 (a slight improvement from last year's forecasted demise of 2033) and that the Disability Insurance fund is now solvent for another 75 years.

"We're in a little better shape [than 2021] because the economy has come roaring back to such a wonderful extent," Goss said.

He also pointed out that labor demand has had a "remarkable rebound." For example, it took 10 years for the job market to come back after the 2008 Great Recession. However, the 2020 recession, which was "very deep and very abrupt," has also reversed just as quickly and in the first quarter of 2022, "we are virtually back to the high level that we had just before the start of the recession."

Further, the "Great Resignation" hasn't damaged employment because people typically have left jobs for better, higher-paying ones, he noted. Worker productivity, which typically has fallen with other financial recessions, has come back, as well.

Goss also pointed out that the assumptions for the report were made in mid-February 2022, before the Ukraine war. He highlighted that in 2021, the trustees projected the Social Security cost-of-living adjustment would be 2.4%, when in reality it was 5.9%. Goss expects a similar situation this year.

"Spiking inflation" could mean the trustees' 3.8% COLA estimate for 2023 would be low, Goss noted. "With the trends we're seeing this year, it's likely we're going to have a COLA closer to 8% than 3.8% next year," especially with higher wages mixed in.

Jason Fichtner, vice president and chief economist of the Bipartisan Policy Center, noted that it appears the OASI and DI are "sensitive to the economy." He wondered: With interest rates higher this year, "what could that do for next year's report?"

Demographic Shift Will Affect Disability Insurance

There's also good news for both the OASI and Disability Insurance Trust Funds. The depletion year for the former was pushed back one year from 2021′s report, and 77% of benefits are expected to be payable at that time. The DI Trust Fund is no longer projected to run out within the trustees' 75-year projection period, a significant improvement from last year's prediction that it would go bust in 2057.

Goss stated that the disability incidence rate, which had been running at 5 incidents per 1,000 people, dropped to three incidents per 1,000 during the pandemic. However, the Trust Fund group revised it to 4.8 per 1,000 people for the long term. "Our expectation is that incidence rates will not be at the level that they were on average over the past 30, 40 years, but they will be somewhat lower" into the future.

Not only are the reserve depletion rates important, Goss said, but so are projections of costs versus level of revenues coming into the program. Trust Fund reserves were still about $2.8 trillion, a decline of approximately $56 billion, which Goss noted was "a bit more than projected."

A big reason for that drop was a refund to the Treasury. During the pandemic, Goss noted, the programs "actually received more money than was appropriate for the liability basis during 2020. So in June, 2021, we gave that money back."

Future Risks

Despite these Trust Funds "being in relatively good shape," Goss predicts costs will rise in the future, largely due to the age distribution change as baby boomers move into retirement and a smaller number of workers from lower birthrate generations join the workforce.

In light of these circumstances, staving off insolvency would require a 25% reduction in program costs or a 33% increase in revenues, i.e. taxes. However, Goss noted that while Congress has stopped insolvency in the program's 87-year history, "we're not sure when [it will happen now]. Time will tell."

Fichtner added that neither choice was an acceptable solution.

With fund insolvency just 12 years away, moderator Shia Akabas from the Bipartisan Policy Center warned "we should be sounding the alarm for policymakers."

Goss agreed, pointing out that although the Medicare Hospital Insurance depletion date has moved to 2028 from 2026, the "implication is the same," that is, it's urgently in need of an influx of Congressional funding.

Panelist Monique Morrissey, economist at Economic Policy Institute at American University, said she was "pleasantly surprised" the report was not worse than it was. However, she said the pandemic could explain some of the reduction in disability rates; the number of Social Security staff declined by 17% meaning that "it's getting harder to access benefits." She added that Congress has to fix the staffing issue so "people don't die waiting for benefits they have rights to."

Goss said that "something fundamental is going on" to cause the dramatic drop in disability income during the pandemic. He cited a study by the Bureau of Labor Statistics showing a change in the distribution of occupations from 2010 to 2019, in which workers moved into managerial and professional positions and away from physical labor, which reduced disability claims. Also, higher education levels allowed people to keep working. "This should be persistent into the future," he added.