A couple of weeks back in the mid-July, the Trustees of the #Social Security Trust Funds released their annual scorecard on the health of the nation’s largest expense.While the numbers were dismal, of course, the media coverage was almost non-existent.

Maybe we have grown accustomed to bleak forecasts for the national pension. Maybe bad news does not sell. In any case, the coverage was generally limited to the standard boilerplate analysis.The trustees expect the program to pay promised benefits into 2034, at which point the checks would face a hair-cut of 23 percent rising as high as maybe 30 percent over time.

Inside the numbers, you need to see four things:

What 2034 means to you

At this point, the program pays fully on promises because of the Social Security Trust Fund.


As much as it is derided in the media, this surplus is the only thing separating seniors from smaller benefit checks. In the report, the trustees projected that this buffer should last into 2034. While this date may have remained at same in the #Year Over Year analysis, time didn't remain the same. As we enter 2017, we moved from 18 years of buffer down to 17. Yes, 17 years sounds like a long time until you realize that a worker at normal retirement age expects to live about 20 years. About half of the people turning 69 today expect to be alive when benefits would be reduced.

The trend that no one discusses is that this issue may impact people who have been retired for 7 years or more. Every year that passes means more retirees will be drawn into the crisis.

Growing gaps

The impact on these people is of course growing.


Over the course of 2016, the program created nearly $1.2 trillion in unfunded liabilities. As it suggests, the terms mean that the program has made a promise for which it does not expect to generate cash. While the calculation looks at a period of 75 years, we express the result in 'present-value'. It is the amount of money we need to invest today.

In total, the system created more liabilities last year than it collected in revenue of all forms. In English, this means that we could have reduced the benefit level to zero for the entire year of 2016, and the program would have finished the year deeper in the red than it started. The large rise results primarily from the passage of time. Changing the calendar year of the report from 2016 to 2017 created 500 billion in promises for which the system doesn’t expect to generate cash.

The cost to resolve

People really want to know how much does it cost me to make this problem go away. The Trustees concluded that we could fill the gaps in over the next 75 years with an increase of 2.83 points in the covered payroll tax.


In English, please. Believe it or not, that phrasing is just a different way to say $12.5 trillion. We express that sum in terms of wages because that is how we pay for the program. Do we use 75 years because it is a long time? Probably not. It is a reasonable time frame for the benefits owed to all current voters. While it is reasonable, it probably should be a bit longer. Bottom line, it means your payroll taxes would rise above 18 percent, costing someone who makes $45,000 a little less than $1,300 a year.

The trend here is that the cost to address these questions rises year over year. The longer we don't talk about the issue, the more it will cost to fix.

Time is Kryptonite

Typically you hear politicians tell you that we have time. Ironically enough, "time" is the one thing that we know with certainty that will make the system less stable. Part of the reason is the math. The rest of the cause results from the meaning of words. Each year, the definition of "solvency" changes because we are looking at a new 75-year window of time. Every year - from now until current law is changed - the calculation of the shortfall will trade a low-cost year like 2016 for a very high-cost year like 2091.

As a result, I can with some level of comfort tell you that in the time that it took the trustees to publish the report, the information which it contained grew roughly $250 billion out of date. This means that In the two minutes that it takes to read this article, the program will generate nearly $2 million in broken promises.

2022 is more important than 2034

While we are generally fixated on the exhaustion date, a more important date is much closer on the horizon. Starting roughly 2022, the government is likely to need to redeem the bonds purchased in the past. That means it will have to increase other taxes or exert limits on other spending. Costs of the program are rising today and will continue to do so until the law is changed. These costs are going to become more and more visible to voters because they require general revenue.

For my generation, we paid a tax of 12.4 percent of wages which was sufficient to pay for benefits and even left enough to set-aside a little something for when I retire.For most of my working career, the program created the revenue to pay for the interest. Self-financed means that the program lends the money to the government which covers the interest cost.

That is changing. Starting in 2010, the program used up every penny of payroll taxes. Since that time, the program has had to draw on general revenue in the form of some interest payments. Soon enough, combined revenue will not be sufficient. At which point, the program will have to redeem that ‘little something’ that was set aside for my generation. The trend is rising cost is going to be more visible because the system is no longer fully self-financed. This year the visible cost was about $50 billion. In five years that it will grow more than five fold every year. #Social Security crisis