When do we start depleting the Social Security Trust Fund? Soon.

This post about the Social Security Trust Fund is a follow-up to this post about the bipartisan push to rollback Social Security. In that piece, I said:

For the owners of the country (and their paid national managers), the real emergency associated with Social Security isn’t the day the last dollar will leave the Trust Fund. It’s the day the first dollar will leave. That’s a whole different problem, and a whole different timeline, for them. How did I come to that conclusion? Read on.

That’s pretty straightforward. A little radical, but not complicated. Read the rest to see the logic that leads me to that conclusion. I also promised:

Next up in this series

This is theory, explanation, and needs to be fleshed out. I’m going to see if I can get some numbers. The size of the Trust Fund is known, but this is also about dates. The Bigs (who love you and want you to be happy) tell you that the care-about date is 2035 (or whenever), the day the Trust Fund runs dry. That deadline induces yawns, one of the problems that its eager promoters have.

But if I’m right, the real deadline is when the first dollar leaves. When is that? Right now, I don’t know. And when that occurs, what’s the rate of decay? What does that graph look like? Again, I don’t know, but it matters. That’s the rate at which the general fund has to make up for the loss, somehow.

I’d love to find out both data pieces, wouldn’t you? Especially the date when the Trust Fund starts cashing those Treasuries. I’d bet money that this is the cause that’s making the Bigs panic and sweat. Stay tuned.

This piece attempts to answer those questions. When does (or did) the first dollar leave the Trust Fund? When does the last dollar leave (based on current projections)?

Older couple via Shutterstock

Older couple via Shutterstock

I did some digging (with a lot of help from friends) in the latest Social Security Report (HTML version here; PDF version here). In it I found one graph and one table that appear to contain the data I was seeking about the Trust Fund. At least in the narrow world of these questions, we have answers.

(Before we go further, I want to acknowledge a huge debt of thanks to Bruce Webb, an expert in these matters, who walked me through this material. Bruce blogs at Angry Bear and he knows his stuff. Thanks!)

How does Social Security refer to the Trust Fund(s)?

Before we start though, a note. Actually there are two Social Security trust funds, but one is much smaller than the other. Since I’m going to quote from some SS literature, I want to give you the key terms:

▪ OASI — Old Age and Survivor Insurance fund (the main trust fund)
▪ DI — Disability Insurance fund (the far smaller one)
▪ OASDI — Both funds taken together

With that in mind, welcome to the world of Social Security documentation. In all cases, I’ll be quoting from the HTML version (cutting and pasting), but referencing page number from the PDF. Needless to say, the two versions are otherwise identical in content.

(The term “pdf page number” means the page number your PDF reader window shows. “Numbered page” means the page number printed on the document page itself. As you know, many documents have unnumbered introductory pages.)

The rise and fall of the Trust Fund under one set of assumptions

First let’s look at the figure I mentioned (Figure II.D2 in the document, shown below); then we’ll consider the table. Scroll down for the figure if you like, or read the following and then scroll down. The introductory text for the figure begins (my emphasis):

Figure II.D2 illustrates the year-by-year relationship among OASDI income (excluding interest), cost (including scheduled benefits), and expenditures (including payable benefits) for the full 75-year period.

Stop for a moment and notice that list:

Income excluding interest — earned interest is not accounted for below under income.
Cost including scheduled benefits — what SS owes to its beneficiaries.
Expenditures including payable benefits — what SS is able to pay.

Why the terms “cost” and “expenditures”? Welcome to the world of SS documentation. The figure introduction continues (my paragraphing):

The figure shows all values as percentages of taxable payroll. Under the intermediate assumptions [one of the assumption sets the document uses], demographic factors would by themselves cause the projected cost rate to rise rapidly for the next two decades before leveling off in about 2035.

However, the recent recession led to a reduction in the tax base and a surge in beneficiaries, which in turn sharply increased the cost rate. This recession effect obscures the underlying rising trend in the cost rate for the next 5 years. The projected income rate is stable at about 13 percent throughout the 75-year period.

You can read the above as wiggle room, appropriately taken. Now the figure itself (pdf page 19, numbered page 11):

Social Security 2012 Report, Fig II.D2

Four things to notice:

The figure has three lines — a thin black solid line labeled Income; a black dotted line labeled Cost; and a thick black line labeled Expenditures, actual money going out. Starting at the year-2000 mark, the Cost line and the Expenditures line lie on top of each other (the thick black one dominates), while the Income line is visible separately. This reflects the fact that everything that is owed (Cost) is paid (Expended).

In 2033 however, the Cost and Expenditures line separate, and in 2034, the Expenditures line (the amount actually paid out) joins the Income line.

In other words, through 2033, Income is less that what’s owed (Cost), so the difference is made up by the Trust Fund. As soon as the Trust Fund is depleted (2033 by this projection), what’s owed (Cost) can only be met by Income, so Expenditure now equals Income. That’s the dropping-off-a-cliff effect you see in 2033.

That cliff is not terribly steep. As the chart points out, in 2033, the program can pay 75% of scheduled benefits from income alone. In 2086, the program can pay 73% of scheduled income. That’s not a huge shortfall to make up. Remove the salary cap and you’re most of the way there.

I’d personally remove the salary cap on all earnings, not just “income,” and make sure the hedge fund billionaires paid in as well. 6% of maybe $50 billion earned per year for just this industry is a lot of catfood-prevention. But that’s me; I’d like to fund the program.

Now look at the first part of the chart, near the left edge. Cost and Expenditure (the solid black line that lies on top of the invisible dotted line) are below the Income line. In this period, the Trust Fund grows and current Income pays the bills. In 2009 Cost crosses above Income. You might think that’s  the point at which the Trust Fund has to cash in its chips.

Except that …

“Income” was defined as income minus earned interest. That’s normally a good idea when making projections like this; you never know what the interest rate environment will be, especially looking 75 years out. Including earned interest would make the 75-year projection almost worthless.

Which simply means that in 2009 the Income line would be higher if the interest it actually earned were added to it. Since this is mainly about projections, you can’t have one definition for Income in one part of the chart (the past) and one for the future (the forecast). They picked the definition of Income that makes the forecast make sense.

Bottom line here: 2009 is not the place where the Trust Fund stops growing.

So what did we learn? 2009 is not the high-water mark for the Trust Fund — we’ll need to look at Trust Fund Asset tables to determine that. But under the assumptions above (the “Intermediate” scenario as described below), the Trust Fund won’t be depleted until 2033 — two decades, folks.

And the Intermediate scenario is just one of three. There’s another scenario that shows an even better date.

To get the high-water mark for the Trust Fund, add back earned interest

To refine the dates, I’m reminded to look at Table VI.F8 (pdf page 214, numbered page 206), which adds back the interest income and shows year-by-year projected total assets. I’ll let you click through to look at it, but note the last column, “Assets at end of year”:

▪ Under the “Intermediate” scenario, the high-water mark for Trust Fund assets is 2020 ($3.06 trillion).
▪ Under the “Low-Cost” scenario, it’s 2030 ($4.6 trillion).
▪ Under the “High-Cost” scenario it’s 2013 (remember, this is an April 2012 report).

Notice that in the table under the Intermediate scenario, the Cost is higher than the non-interest income already, which is exactly what the graph showed. Because of interest, however, the Trust Fund keeps growing.

You can evaluate those scenarios here (pdf page 16; numbered page 8). Each is a blend of assumptions about fertility rate, death rate, immigration rate, productivity, wages, unemployment and so on. Clicking through will show you what those assumptions are. It’s the three-bears approach to what the program could owe — worst-case cost, best-case cost, and somewhere in between.

Clearly, which assumptions are correct matters a lot. The “Intermediate” scenario is generally cited, since it straddles the middle. The “High-Cost” scenario is tempting though, since it assumes a higher unemployment rate, lower productivity, and lower interest rates.

I am not optimistic about either jobs in general or good jobs going forward, since the current U.S. industrial policy is to ship our industries out of the country and hand the (untaxed) savings to billionaires, using corporations as a pass-through. (I’m not joking.) And I don’t expect that to change anytime soon.

On the other hand, I don’t expect the population to continue to grow for the next 20 years either, so that lowers cost, especially if it’s the elderly — the SS recipients — who are most vulnerable. In my view, there’s a surprise on the near horizon, and the frailer and poorer will be hit first and hardest. (More here.)

Bottom line

Taking the Intermediate scenario (or something a little more pessimistic), the Trust Fund will start cashing in (making net withdrawals) between now and 2020. I’m pessimistic about the economy, so my answer to the first question, “When do we start draining the Trust Fund?” is … soon.

And the answer to the second question — “When does the Trust Fund run dry?” — is anyone’s guess, but I’d be shocked if it was earlier than 2030 … two decades from now.

So back to the point in my earlier piece, about what’s driving the Bigs to reduce Social Security benefits — you tell me what’s motivating them. Is it the prospect of spending money in 2033, after most of them are dead? Or the prospect of replacing off-budget Treasuries with on-budget Treasuries … “soon,” while most of them are still in their own wage-earning (billionaire-financed) years?

As I look at our species, “soon” trumps “after I’m dead” for most of us, especially for the greedy. But do feel free to decide for yourselves. Perhaps our masters are beacons of unselfishness after all, and we just haven’t noticed it.


To follow or send links: @Gaius_Publius

Gaius Publius is a professional writer living on the West Coast of the United States.

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25 Responses to “When do we start depleting the Social Security Trust Fund? Soon.”

  1. There were many years when SS ran big cash surpluses. And yes, Wall Street wanted to get its hands on that cash flow and invest it in things other than Special Issue Treasury bonds.

    But those days are gone. That ended in 2009. SS is running big cash deficits now. There is no cash flow left for Wall Street to divert any longer.

    Whatever thoughts existed years ago on privatizing SS assets are now dead. It’s a dead issue for the next hundred years. So please, stop worrying about this aspect of the problem. You will never hear any talk about diverting SS cash to Wall Street again, there is no cash. No one on Wall Street would want anything to do with this any longer.

    Worry about something else.

  2. The only legal way is to raise FICA taxes? No.

    There are two ways, raise taxes, or cut benefits. (or some combo)

    Based on current law, the benefits will get cut.

  3. perljammer says:

    There are a couple of problems with this “analysis”.

    First, the reason SSA doesn’t count earned interest, and the reason you can’t, is that it isn’t realized until the interest-bearing bonds are cashed. So, you can’t start counting the earned interest until you start depleting the Trust Fund.

    Second, where do you think the earned interest comes from? These are, after all, government securities we’re talking about. You win the prize if you guessed, “The interest is paid out of the General Fund.” This, my friend, is where SS starts to impact the Federal budget in a real and very painful way, and is why our leaders are so interested in cutting benefits.

    The only way to keep this boat afloat is to increase the rate of contribution to the Trust Fund so Expenditures can keep up with Cost.

  4. lynchie says:

    Nor did I. I got fooled once but finally saw I was an idiot for doing so.

  5. lynchie says:

    We need to cure the problem of unemployed and their contributions will help. In addition having a holiday from paying SS contributions for employers and employees didn’t help the problem.

  6. SS needs cash to make benefit payments. Interest income is NON CASH – it is paid with paper. In 2012 SS had a negative cash flow of $54.7Billion. The report from SSA:


    Now on the question of when will the Trust Fund top out. The 2012 SSA report is old, a new one is due out in days. The most recent estimate (February) from CBO has the date where the Trust Fund tops out at 2016 – just three years from today:


    (Excel spread sheet – look at tab #2 – Surpluses and Deficits. You see that in 2016 the Trust Funds stop growing. The date that this will happen is between July and September of 2016.

    So the TF will top out years before you think it might, and the TF is running monster cash deficits today. Those deficits MUST result in the USA borrowing more. So at this point, China is funding a portion of the annual SS payouts.

    It is these realities that concern folks like me. In 2013 SS will run a cash deficit of $75B. That number will rise every year. It will exceed $200b in 2020. The cash shortfalls will exceed $1 Trillion over the next decade. After 2020 the numbers go ballistic. Again, every penny of this has to be borrowed from someone.

    You may look at SS and think it is stable and manageable. It is not.

  7. Bill_Perdue says:

    Neither did I. Neither did decent people or prople with a shred of smarts.

  8. karmanot says:

    I didn’t vote for the SOB.

  9. Bill_Perdue says:

    “It isn’t Obama’s fault if this goes through, it is our fault for letting him.”

    Let’s fix this.

    It isn’t Obama’s fault if this goes through, it is our fault for voting for him. There are no lesser evils in politics.

  10. Bill_Perdue says:

    Of course he’s not on our side (if by that you mean the side of working people which is doubtful.) Obama is a Democrat. Democrats and Republicans are the enemy. Period Full stop.

  11. Bill_Perdue says:

    Save Social Security, Medicare and the lives of countless GI’s and civilians and Free Brad Manning.

    Call that lap dog of the rich, Obama, at the WH at 202-456-1111 or 202-456-6213 for TTY/TTD users.

  12. Bill_Perdue says:

    I had to read that twice, and I’m going to go over it a third time. Thanks Gaius. It’s very thorough and very chilling.

    It confirms the socialist contention that capitalism can’t be reformed because over time reforms will be gutted. And often as not the dirty work is done by Democrats because people don’t trust Republicans, who are more open about their role as lap dogs for the rich.

    Carter deregulated rail, truck and air transport, broke up ATT and prepared for the PATCO strike. (1) ““12 months before the government’s contract with PATCO was set to expire, Carter formed a”Management Strike Contingency Force” to prepare for a walkout–including the use of scabs.” The CWA lost over 153,000 jobs because of Carter and rail and air unions lost hundreds of thousands more over time. (2) “Congress passed the Staggers Rail Act of 1980, which further
    eased regulations… Unions lost power and had to agree to drop the job of brakemen — about a third of workers on trains.”
    (3) “… by 1985 unionized workers were only 28 percent of the trucking work force, down from around 60 percent in the late seventies.” Now most of the Teamsters are UPS – everyone else works for anti-union companies.

    Clinton chortled as he elbowed NAFTA and the deregulation acts of 1999 and 2000 through Congress and then signed them. Hundreds of thousands of jobs were lost by NAFTA and millions when the economy crashed. To make up for it he created 200,000 new cops. He gutted welfare. He was the worst president since Hoover, although that title was surpassed first by Bush and now by Obama, who’s going to finish us off.

    Biden gutted consumer friendly bankruptcy laws in 2005. “Change,” “Hope” … Why They Must be Talking About Joe Biden! “The first duty of any senator from Delaware is to do the bidding of the banks and large corporations which use the tiny state as a drop box and legal sanctuary. Biden
    has never failed his masters in this primary task. Find any bill that sticks it to the ordinary folk on behalf of the Money Power and you’ll likely detect Biden’s hand at work. The bankruptcy act of 2005 was just one sample. In concert with his fellow corporate serf, Senator Tom Carper, Biden blocked all efforts to hinder bankrupt corporations from fleeing from their real locations to the legal sanctuary of Delaware.”

    Nothing will change until we dump our enemies – Democrats and Republicans – and get on with the business of building the left in unions, building workers parties and creating a workers state, a government run exclusively by and for working people.

    (1) http://socialistworker.org/2001/374/374_10_PATCO.shtml

    (2) http://money.howstuffworks.com/10-effects-of-deregulation1.htm

    this was gloating by a management group – http://www.econlib.org/library/Enc1/TruckingDeregulation.html

    (4) http://www.counterpunch.org/2008/08/23/quot-change-quot-quot-hope-quot-why-they-must-be-talking-about-joe-biden/

  13. MyrddinWilt says:

    Beginning negotiations in the middle does make sense if you think the other side are negotiating in complete bad faith with absolutely no interest in a deal.

    I don’t think Obama is bad at negotiating with the GOP, he has forced more sense into them more often than I would have expected. The problem is knowing whether he is really on our side or not.

    I think it probably won’t matter because as with the sequester alternatives the GOP can’t take yes for an answer.

  14. Mike Meyer says:

    Save YOUR Social Security, call Boehner @1-202-225-0600. The day Wall Street touches The Trust Fund IS the day it disappears.

  15. GarySFBCN says:

    Yes, he wants us to protest. I hate it but It is his process and I think it may be a model of how things are done in Chicago – the best and loudest ‘dog and pony’ show wins. It wouldn’t nearly as toxic if he actually clued-in somebody about this.

    When LGBT leaders met with him many months into his first term asking why not one major campaign promise had been enacted, he got all indignant and said that those leaders had to “force” him to act. And interestingly enough, the day after Dan Choi and others chained themselves to the Whitehouse fence, an ’emergency meeting’ was called by Obama with those same LGBT leaders and he began to act on DADT.

    I probably will not be affected by chained cpi, but it will be a drastic for millions of people AND it is morally wrong to ask us, the poor and the middle class, to make up for the excess of the wealthy.

    Regardless, I’m considering dusting-off my ‘Not One Nickel’ blog – not one nickel for any Democrat who supports or refuses to fight against the Obama Social Security cut. And that’s what we should be calling it everywhere, not the chained CPI.

    Obama is a lame duck and I don’t give a shit if we shame him into obscurity over this.

  16. nicho says:

    Obama is scum. Not as scummy as Romney, but still scum. He wants to make us protest? Fuck him. We’re not marionettes in some political game of his.

  17. GarySFBCN says:

    Well, I’ve been wrong about this very topic, but if this ‘goes through’ it will be 100% Obama’s fault. Who in their right mind begins negotiations from the middle? You may be correct that that the Obama administration is banking on us to protest, etc, but I don’t believe anything he says and neither should anyone else. My advice is to be generous by taking everything at face value, which, in this case, is very damning of Obama.

  18. timncguy says:

    There is a little bit of an OOPS in this post. The post attempts to calculate a point in time when the General Fund will have to start supplementing Social Security in order to make up for its shortfalls.

    But, the General Fund NEVER has to make up for any loss in Social Security. In fact the law states that the General Fund CANNOT be used to make up for Social Security losses. The only LEGAL way for Social Security to make up for shortfalls in through bringing in more in FICA taxes. Either by raising the tax rate or raising the cap where Social Security stops collecting on an individual’s income.

  19. MyrddinWilt says:

    I don’t I think we should fight like hell.

    It isn’t Obama’s fault if this goes through, it is our fault for letting him. If they propose Chained and nobody makes a peep then that means that we are OK with them doing it. If they propose Chained and people raise merry hell and the proposal fails because people would rather raise taxes, well then Obama will claim that was the plan all along. Whether it was or not is irrelevant to me, I care about winning the policy, not the argument or taking the credit.

    I think that part of what is going on here is that the GOP in congress does not have the slightest interest in spending cuts. None, zip, nada. All they care about is cutting taxes for the 0.01%. Cutting spending is a means to an end but they are far more interested in having Obama take the electoral hit for any SS cuts than making the cuts themselves.

    Which is I suspect part of the calculation here. The GOP caucus is split between the Tea Party faction that want to cut everything and the cynics who don’t want to do anything unpopular that would hurt them in either the primary or the general. So they avoid doing anything by insisting on a party line they know is stupid.

  20. caphillprof says:

    Thank god for the 2d amendment. I can see a day when the Romneys have to choose between LaJolla and the Caymens.

  21. jimfromthefoothills says:

    I love your writing GP… and arguing the other side’s data has merit, but I prefer a different approach.
    The underlying philosophy of SS that creates the concept of “worklife,” social contract and human equality were valid in the 1930’s and even more so today. If this is argued as just another government program, we will lose because expenditures look terribly large and our economic modeling does not take into account the most important variable in economic growth…innovation.

    As a country we are exponentially wealthier than we were in the 1930’s… yet now the program is “too expensive.” Since you are a leading journalist on this topic, please consider moving the argument to our turf… where we win every time (just as FDR did).

  22. lynchie says:

    Nicho weren’t you paying attention do you have ADD.. SS is not a job creator it only allows people to eat their cat food and their oatmeal.

  23. lynchie says:

    On Huffington Post an advisor to Obama says he has proposed cuts in SS and entitlements.


    I consider this a done deal because not a single Congressmen won’t jump at the chance of making their corporate bosses happy. Simply solution is raise the cap and no one in Congress or in the Media will even bring that up.
    In the run up to the election and during the campaign he was adamant that no cuts would occur unlike what the GOP wanted to do but he got his votes and can’t get re-elected except now we are going to have to face Clinton 3, Obama being Clinton 2.

    I knew i was going to get stabbed in the back by Obama but I didn’t think he would give me tongue first.

  24. nicho says:

    Why isn’t Social Security “too big to fail?”

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