Social Security: The Last Source of Income

A friend of mine is applying for Social Security. He didn’t plan to apply until much later. He didn’t want to apply. But he has no choice.

Social Security looks like the best thing — maybe the only thing — he can do.

You can probably guess the story. He’s about to turn 65. He’s smart, capable, well-educated and disciplined. He’s spent his career in technology marketing and sales with years of great success.

And then a job ended. But another couldn’t be found.

With a long history of top earnings, he’ll bring in a good Social Security benefit even if he hasn’t reached the full retirement age of 67. He’s also eligible for Medicare. That will solve another problem.

My friend isn’t alone. I’m sure lots of us know someone in the same situation – taking Social Security benefits before they intended to take them. For many, Social Security qualifies at “the only game in town.”  Jobs aren’t available. And you can spend your savings, but you can’t earn anything on them.  That’s not the way retirement is supposed to be.

But that’s the other side of the Federal Reserve interest rate policies that have brought Treasury bill and bank deposit yields to virtual zilch. At current interest rates and dividend yields, a Social Security check is hard to beat.

Let’s keep my friend and everyone like him in mind as we look at what’s coming for Social Security and its finances.

The most recent report from the Social Security trustees, released April 22, tells us a familiar story. But it speaks with greater urgency than in previous years.

The highlights section tells us that the program is heading into deficit, that the trust fund reserves will shrink to less than a year of spending by 2030 and that the trust fund will be depleted by 2035.

Pretty scary, isn’t it?

While all this is written in the most solemn prose, it’s difficult for the vast majority of human beings to take it seriously at any time, let alone the present. Our reality is that millions of people and thousands of businesses are running out of money right now. Having cash to spend out to 2035 seems pretty la-de-da. More important, 2035 is four complete presidential election cycles in the future.

That’s the political equivalent of forever.

Ironically, the most telling information on Social Security doesn’t appear in the trustees’ report. It appears as appendix F in the annual report from the Medicare trustees. A short discussion of accounting, appendix F shows us the difference between trust fund accounting and federal budget cash accounting. The chart below tracks the two figures from 2003, the first year the appendix appeared in the trustees’ report, to 2019.

Take a close look and you’ll see:

• Social Security looks a lot better in trust accounting than in federal cash accounting.
• Social Security shows a cash surplus in every year from 2003 to 2009, but the cash was spent.
• The trust accounting surplus drops dramatically as the Great Recession begins in 2009.
• Social Security begins to have a cash deficit in federal accounting in 2010 of $37.7 billion.
• In 2011 and 2012, the Great Recession recovery years when the employment tax was cut by 2 percentage points, the cash deficit in federal accounting balloons to $128.6 and $160 billion, respectively. After 2012 it declines but remains in deficit every year in spite of low unemployment rates in 2018 and 2019.
• Enter Covid-19 and 2020. With unemployment soaring and an average of 10,000 people a day turning 65 and finding neither work nor a yield on their savings, it’s a certainty that Social Security will have a significant deficit in both trust and federal cash accounting.

How big will those cash deficits be? Many will guess. What we know for certain is that the deficits will be larger than during the Great Recession. We also know that they will continue. And that the trust fund cupboard will be bare well before 2035.

To use the genteel language someone like Henry Higgins might have used, “the fecal matter will strike the motorized air spreading device” sooner, not later.

Related columns:

Scott Burns, “Social Security and Medicare: It’s all about the cash,” 05/28/2019 https://scottburns.com/social-security-and-medicare-its-all-about-the-cash/

Scott Burns, “To see the problem, turn to appendix f, page 212,” 07/24/2016 https://scottburns.com/to-see-the-problem-turn-to-appendix-f-page-212/

Scott Burns, “Social Security and Medicare: Getting Worse, But Out of Sight,” 08/10/2014 https://scottburns.com/social-security-and-medicare-getting-worse-but-out-of-sight/

Scott Burns, “An involuntary work of fiction,” 06/07/2013   https://scottburns.com/an-involuntary-work-of-fiction/

Scott Burns, “For the real condition of Social Security and Medicare, turn to Appendix F,” 05/06/2012 https://scottburns.com/for-the-real-condition-of-social-security-and-medicare-turn-to-appendix-f/ 

Sources and References:

CMS Trustees reports archive: https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/TrusteesReports

Social Security Trustees Reports: https://www.ssa.gov/OACT/TR/

This information is distributed for education purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, product, or service.

Photo by John Guccione www.advergroup.com from Pexels

(c) Scott Burns, 2020