- Part 1 - Insolvency – The feds annual report is full of bad news for Social Security's future
Bottom Line: There's no shortage of good economic news right now. That's not to say there aren't significant issues on the horizon. While there's an argument that can be made that if the US economy grows fast enough we can grow our way out of future debt problems, the same isn't true for the governments biggest long-term obligations. It's no secret that insolvency is looming. President Clinton created the Bipartisan Commission on Entitlement and Tax Reform in 1994. As we know nothing happened. Speaker of the House Paul Ryan's biggest area of desired reform during his political career has been entitlement reform. As we know he's retiring and nothing's happened. What is happening however, is that with each successive year without action we're coming closer to a day that will be unavoidable for all federal politicians, but most importantly all recipients and future recipients.
According to the Social Security Trustee's report:
Social Security's insolvency year is 2034 (16 years)
Social Security would initially be forced to cut benefits by 21%
And there was another less than ideal development. Because Social Security isn't money that's in an account accruing interest until you're ready to collect, and instead what's not paid out to current recipients is borrowed against, we're already having to draw down principal in Social Security funds to pay for shortfalls in the program due to the interest that's owed along with having to pay out current benefits. Yikes. So, what'll happen? Predictably nothing for the foreseeable but here's the deal. If you're going to be alive in 16 years this is set to be extremely real. If Social Security weren't a government program it'd be ID'd as a Ponzi scheme and the fixes aren't easy but it's also not complicated. Social Security should be paid into an account, in your name, that can't be taken away from you that grows overtime until collected. That would require significant reform and political courage. Something that Clinton nor Ryan nor anyone in-between has had.