The trust fund that supports Social Security disability benefits will run out of money by 2017, leaving the program unable to pay full benefits unless Congress acts, according to new congressional estimates. About two decades after that, Social Security’s much larger retirement fund is projected to run dry as well.
Driving the projected shortfalls are laid-off workers and aging baby boomers who are bombarding Social Security’s disability program with benefit claims, leaning heavily on the cash-strapped system. Applications are up nearly 50 percent over a decade ago as people lose their jobs and can’t find new ones in an economy that has shed nearly 7 million jobs.
Also, not to be overlooked, some people are double dipping the system – collecting unemployment insurance benefits, which extend for 99 weeks, as well as Social Security benefits and/or state and federal pensions. This double dipping is not illegal, and many people would feel like suckers if they didn’t take advantage of all the benefits available to them through the federal and state governments.
Still, the new benefits stampede on Social Security is adding to a growing backlog of applicants – many people have to wait two years or more before their cases are resolved. And the financial problems of a program that’s been running in the red for years have been worsening.
Trustees: Shore Up the System Now
Much of the focus in Washington has been on fixing Social Security’s retirement system, with proposals ranging from raising the retirement age to means-testing benefits for wealthy retirees. But the disability system is in much worse shape: The trustees who oversee Social Security are urging Congress to shore up the system by reallocating money from the retirement program, just as lawmakers did in 1994. Yet that would provide only short-term relief at the expense of weakening the retirement program. In a bad economy, claims for disability benefits typically increase because many disabled people get laid off and can’t find a new job. This year, about 3.3 million people are expected to apply for federal disability benefits. That’s 700,000 more than in 2008 and 1 million more than a decade ago.
“It’s primarily economic desperation,” Social Security Commissioner Michael Astrue told the Associated Press. “People on the margins who get bad news in terms of a layoff and have no other place to go and they take a shot at disability.”
The disability program is also being hit by an aging population – disability rates rise as people get older – as well as a system that encourages people to apply for more generous disability benefits rather than waiting until they qualify for retirement.
Retirees can get full Social Security benefits at age 66, a threshold gradually rising to 67. Early retirees can get reduced benefits at 62. However, if you qualify for disability, you can get full benefits, based on your work history, even before 62.
Increasing Reliance on Social Security
It’s clear is that Americans have grown increasingly reliant on Social Security for retirement income. According to a report earlier this year from the left-leaning Institute for Women’s Policy Research, between 1999 and 2009 the number of people 65 and older who count on Social Security for at least 80 percent of their income swelled – to 48 percent for men and 26 percent for women because of job and income loss.
In January, projections from the Congressional Budget Office showed the program’s trust fund dwindling and hitting zero by 2037 as America’s baby-boomers retire and applications for benefits increase. This year, Social Security will pay out $45 billion more in retirement, disability and survivors’ benefits than it recoups in payroll taxes — a figure that almost triples when the new one-year payroll tax cut is included, CBO said. Projections for the total year will balloon to $727 billion or 4.8 percent of GDP.
More than 54 million people collect retirement, disability, or survivor benefits from Social Security, but by 2021, that number will grow to 71 million people, according to the CBO in January. Also in 2021, “CBO estimates Social Security outlays will total $1.3 trillion, or about 5.3 percent of GDP.”Though groups from all political leanings seem to agree the Social Security system needs reforming, consensus has yet to be reached.
Organizations like the Concord Coalition say Social Security reform is critical for the sake of reducing the nation’s ballooning deficit, while groups like the Center for American Progress and the Institute for Women’s Policy Research say the most compelling reason to change the system is to modernize the program to be better-tailored to demographic and economic changes of the last two decades.
“There’s still a lot of reticence on the part of politicians to touch this issue, and frankly a lot of misunderstanding on why it’s important to act now rather than wait until 2037,” said Bob Bixby, executive director of the Concord Coalition, a few months ago. “We’re talking about trying to calibrate a system so that it’s sustainable over the long term. And it just seems to never get past the false debate about whether granny’s benefits are going to be cut tomorrow.”
But according to Christian Weller at the Center for American Progress, the latest CBO projections don’t account for the revenue that Social Security will continue to collect, which by 2037 should be able to pay about 80 percent of the benefit payments.
“Social Security needs to be revamped, but it is much more about making it evolve to fit how the economy has changed around it over the past two decades, Weller said. “We need to work to make Social Security a more efficient social insurance system that people will get better bang for their buck and get more protection from, especially when we need it.”
Last year, when Social Security celebrated its 75th anniversary, the system’s 2010 financial report card noted that in 2010, for the first time since 1983, the program would pay more in benefits than it would collect in taxes. It also said that by 2015, the system would require ever-growing cash infusions.
Social Security advocates might reply that none of this matters. The cash-flow shortfall was anticipated, they could say, and the system could close it by drawing on its $2.5 trillion trust fund. But is that still true today?
The Associated Press contributed reporting to this article.