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If you are in your 50s or 60s, you may have reacted with concern to the numerous recent news reports about the August 31, 2021, annual report from the Social Security Board of Trustees on the long-term financial status of the Old-Age and Survivors Insurance and Disability Insurance Trust Funds.
Should you be alarmed?
Let's look at two of the news articles. One by Eric Boehm was published September 1 at Reason.com with the headline, "Social Security Will Be Insolvent in 12 Years.” The opening line was, "The fiscal crisis looming over Social Security is no longer a distant threat. The national pension system will be insolvent by the time workers now in their mid-50s are ready to retire."
On the same day, CNN published a piece by Katie Lobosco titled, "Social Security won't be able to pay full benefits by 2034, a year earlier than expected due to the pandemic." Their opening line was, "Social Security will have to cut benefits by 2034 if Congress does nothing to address the program's long-term funding shortfall . . ."
There is a big difference between Reason's "insolvency" (bankruptcy) and CNN's "cutting benefits."
Which is right?
First, a little background on the two news organizations. Reason is a monthly libertarian magazine from the Reason Foundation with a circulation of around 50,000. CNN is the Cable News Network, a basic cable and satellite television channel owned by the Turner Broadcasting System division of WarnerMedia, that has over 500,000 viewers a day.
MediaBiasFactCheck.com rates Reason Magazine as right-leaning based on stories that favor libertarian positions, also rating it “high” for factual reporting due to mostly proper sourcing and a clean fact-check record. It rates CNN as left-leaning based on editorial positions and news story selection and “mixed” for factual reporting, noting that most failed fact checks were by TV hosts, while news reports tended to be properly sourced.
Which outlet should you believe? Neither article explains the difference between the trust fund and the annual income generated through the payroll tax that funds Social Security.
This 12.4% tax is paid half by employers and half by employees on wages up to $142,800. Since inception, payroll tax income has exceeded the amount needed to pay Social Security benefits. The surplus was "loaned" to the U.S. Treasury and used for general expenses. If the amount needed to pay benefits ever exceeded the income, this "trust fund" would start calling in the loans.
Currently, the income is about equal to the cost of the program. According to a 2019 Forbes article, during 2019 Social Security took in $1,061.8 billion and spent (mostly in benefits payments) $1,059.3 billion. The spending was projected to start exceeding the revenue in 2021, creating a need to draw on the accumulated reserve.
According to the August SSA press release, "The year when the combined trust fund reserves are projected to become depleted, if Congress does not act before then, is 2034 – one year earlier than last year’s projection. At that time, there would be sufficient income coming in to pay 78% of scheduled benefits."
"Paying 78%" is not the same as Reason's "insolvent" headline. Both the SSA and CNN used that huge word "if." In this case, CNN's article is more accurate.
Before you panic in response to provocative headlines, do your own fact-checking. Between now and 2034, the government can (and likely will) take action to revamp Social Security. It could opt to raise payroll taxes or pay Social Security benefits out of general funds.
Either way, I rate the chance of Social Security benefits being cut somewhere between nil and zero.
Rick Kahler, MS, CFP®, CFT-I™, ChFC, CCIM, is founder of Kahler Financial Group, a Rapid City, SD-based fee-only Registered Investment Advisor.
Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
