The Social Security Trust Fund is quickly becoming insolvent based on a shrinking work force and Obama’s employee reduced contribution into this fund. What does this mean?
Under current law, once the trust fund is gone, Social Security could only pay 78% of benefits. Since older retirees and the disabled would be protected, new retirees would face much deeper cuts to a benefit that is not especially generous to begin with.
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Assuming a 22% automatic cut, average earners (about $43,000 in 2012) halfway into a 40-year career would have to set aside more than 5% of annual wages, or $2,150 a year, to replace lost benefits. This assumes the money is invested in Treasuries and is used to buy a lifetime annuity.
A 22% automatic cut coupled with inflation and an increase in the age to collect this entitlement means that that this “supplemental” retirement fund may cover your health care coverage when you retire. That assumes that the Death Panels are not in place.
David DeGerolamo
Social Security Trust Fund Outlook Takes $1 Trillion Dive
The outlook for Social Security’s trust fund has deteriorated to an astonishing degree over the past year, new Congressional Budget Office projections show.
The nonpartisan budget scorekeeper released the estimates Tuesday as part of broader economic and budget forecasts. CBO expects the trust fund to peak in 2018 and decline to $2.7 trillion in 2022 — a full $1 trillion less than Social Security’s own actuaries predicted last year.
The new trajectory suggests that the trust fund’s current depletion date of 2036 may jump ahead several years when Social Security’s trustees release their annual report this spring, making the retirement program more central to the 2012 election .
The trust fund doesn’t mean much for the government’s ability to afford benefits — Social Security’s assets are offset by Treasury’s equal debt. But it does give the program the legal authority to pay all promised benefits until its special Treasuries are spent.
Under current law, once the trust fund is gone, Social Securi ty could only pay 78% of benefits. Since older retirees and the disabled would be protected, new retirees would face much deeper cuts to a benefit that is not especially generous to begin with.
The average retired worker received a $1,200 monthly benefit last year before Medicare premiums were subtracted.
Social Security’s earlier reckoning day gives people less time to set aside savings to make up for what the program can’t afford.
Assuming a 22% automatic cut, average earners (about $43,000 in 2012) halfway into a 40-year career would have to set aside more than 5% of annual wages, or $2,150 a year, to replace lost benefits. This assumes the money is invested in Treasuries and is used to buy a lifetime annuity.
Whoever is in the White House next year likely will have to give workers notice as to how this looming hole in the safety net will be filled, whether by longer careers, more saving or tax hikes.
