Should You Be Counting on the Social Security Trust Fund?

Posted Wednesday, September 19th, 2012  | Comments (3) rule
The Social Security Trust Fund does not contain “real economic assets.” This reality will make retirement not only more distant but also more difficult for most of us.
Cahill's photo Kevin E. Cahill, PhD
Research Economist
Sloan Center on Aging & Work
Phone: 617.552.9195
Kovacs's photo Gene J. Kovacs, PhD
Vice President
Analysis Group, Inc.
Phone: 617-425-8118

The three pillars of retirement income – Social Security, private pensions, and savings – are shaky these days.

  • The Trustees of the Social Security program report that, as of 2033, the trust fund will run dry and system revenues will not be sufficient to pay 100 percent of promised benefits under current law.
  • Traditional defined-benefit plans — ones that pay predetermined monthly benefits throughout retirement — have been largely usurped by 401(k) plans, leaving individuals exposed to investment risk and, for those who do not convert to annuities, longevity risk.
  • Savings offer no real buffer either, because the typical older household has less than $100,000 in non-pension, non-housing assets— hardly sufficient to support 20 years of leisure later in life. Today, one in three older Americans relies not on savings but on Social Security benefits for the bulk (80 percent or more) of their family income.

Given the status of these traditional sources of retirement income and the precarious prospects for the future, most of us are going to need to work beyond traditional retirement ages if we want to mitigate any loss in our standard of living.

Maybe that’s not news to you. Well, get ready: the situation is even bleaker.

In 2012, the Social Security administration reported that tax contributions were insufficient to cover costs, or benefits paid. The red ink in the near term is rarely reported, however, because the Social Security Administration plans to tap into its trust fund assets for benefit payments. Those assets are invested in U.S. bonds, and while they are “backed by the full faith and credit of the U.S. government,” that just means we taxpayers will not default on our commitment to the Social Security Administration. In fact, the fiscal 2000 U.S. Budget explains that “these funds are not set up to be pension funds … they do not consist of real economic assets that can be drawn down in the future to fund benefits. Instead, they are claims on the Treasury that, when redeemed, will have to be financed by raising taxes, borrowing from the public, or reducing benefits or other expenditures.”

Any one of these options — or all three — will negatively impact today’s retirees, tomorrow’s retirees, or both, and the situation is unavoidable. Why? Because, quite simply, our contributions to the trust fund have already been spent.

Until very recently, as contributions from the Social Security program exceeded costs, the Treasury department complemented its general revenues with Social Security contributions, and spent them on a myriad of government activities (as the graphic shows). In return, the Treasury issued IOUs to the Social Security Administration, with the intention that further down the road the Treasury would repay the IOUs with income taxes and/or borrowings. Further down the road means now, though, and, with a deficit in 2012 exceeding $1.2 trillion, the Treasury has no choice but to borrow to repay the Social Security Administration.

We take no stance as to the wisdom of the Treasury’s choices in the past. We would, however, like to comment on two explanations that we have come across to justify these actions.

The first argument is that the excess contributions from the Social Security program were not spent but, rather, “invested.” The excess contributions have been put toward roads, bridges, and any number of government-backed initiatives over the years — money that would have otherwise required borrowing at the time the resources were spent. So, while there are no hard assets in the trust fund, our government has claims on public goods that were made possible through the trust fund dollars. While this argument may sound legitimate, it is highly suspect. Can you imagine how people would react if the leadership at Ford announced it was going to “invest” Ford’s pension assets on a new plant in Michigan? Or worse, that Ford was going to “invest” pension fund assets on Super Bowl ads? Or a company picnic or even executive salaries?

The other argument is that the Treasury has already accounted for the fact that it will need to borrow to replenish the trust fund. The only difference from an accounting perspective is the fraction of total government debt that is held by the public, which increases as the Treasury actually starts borrowing to replenish the trust fund. While this is a truism, the fact that the Treasury has planned to borrow, and thus further obligate the very taxpayers who receive Social Security benefits, does not in any way mean retirees will receive the benefits originally promised.

One thing is clear – the Social Security program did not cause this mess, and it would be wrong to label the Social Security program a failure because of this situation. Quite the contrary, the Social Security program has been an enormous success in lifting older Americans out of poverty. The problem with the trust fund has very little to do with the Social Security program itself and a lot to do with the way our government functions generally.

So, what to do? We could begin by at least acknowledging our current predicament. The mainstream view in both academia and the media is that the Social Security program is solvent to pay full benefits through 2033, as the program draws down the trust fund. We disagree. The relevant date was 2010. The year 2010 is when contributions into the system were insufficient to cover current outlays — a discrepancy that is projected to occur every year throughout Social Security’s forward-looking 75-year budget window.

For the past two years – and every year going forward under current law – the Social Security benefits paid to older Americans have been and will be financed in part with borrowed funds. This arrangement is unsustainable. Regardless of what our government does about it, we should all start preparing accordingly as we think about how long we plan to work later in life.


The views expressed in this article are those of the authors and do not necessarily reflect the views of Analysis Group or ECONorthwest.

Comments (3) for "Should You Be Counting on the Social Security Trust Fund?"

Women Working Late

Posted Wednesday, September 5th, 2012  | Comments Off on Women Working Late rule
More women than ever are saying no to retirement well past the age of 65
Elizabeth F. Fideler’s book Women Still at Work—Professionals Over Sixty and On the Job was published this summer by Rowman & Littlefield. Her next research project looks at older men in the workforce. Dr. Fideler invites men who are 60 and older and still working to participate; please e-mail her to request her two-page survey.
Elizabeth F. Fideler, EdD
Research Fellow
Sloan Center on Aging & Work, Boston College


Despite the toll that unemployment has taken on the labor force in this country, growth continues in a surprising sector: women between the ages of 65 and 74 and women who are 75 and older.

These are now the two fastest-growing cohorts of American workers. By 2018, forecasters expect the pace of growth for these two groups to increase by 89.8 percent and 61.4 percent, respectively, far outstripping the rate of increase for all younger groups of working women. What’s more, the percentage of women who are 65 and older in the workforce is increasing nearly twice as fast as the percentage of men in the same age group.

One reason for the shift in distribution by age and gender in the American workplace is, of course, that both women and men are healthier and living longer. But longevity doesn’t explain the shift fully, nor does the arrival of baby boomers in the ranks of seniors.

For the first time, women in all age groups are the majority across American workplaces. This is truly a success story in which older women workers are finally getting their due. When these women came of age in the 1950s and 1960s, their occupational options were severely limited. The women who have persevered deserve to be celebrated—not only for their staying power and accomplishments but also for navigating astutely during the extended economic downturn and for defying stereotypes about aging.

Decidedly active, well-educated women predominate in the professions: education, business, health care, and social services, as well as the arts, libraries, ministry, law, and government. To understand this group better, I conducted a national survey and in-depth interviews of professional, retirement-age women. I wanted to know why these women keep working when many, presumably, are financially comfortable enough to quit. I also wanted to know how they manage multiple demands on their time and energy and how they balance work with family.

Typically, they say they enjoy their jobs and feel productive. Many do report financial or familial inducements to stay in the workforce: paying off a mortgage, building back lost retirement savings, maintaining health benefits, helping a family member who was laid off, sending a grandchild to college, or supporting an elderly parent.

For most professional women, though, the wolf is not at the door. Some admit that they fear boredom and an atrophied intellect if they stop working. Nearly all say they simply love what they do. One intrepid 80-year-old caterer, cooking instructor, and author told her daughter, “I will retire when they stop calling me!”

Bottom line, the professional women I surveyed and interviewed are fortunate in having a choice between working and retiring. It’s a choice that less educated women earning low wages generally do not have; many have to keep working just to stay afloat.

Whether women who are 65 and older work because they want to or because they must, they are a force to be reckoned with. Their presence on the job should not be a surprise to anybody anymore—least of all employers and planners.

Comments Off on Women Working Late for "Women Working Late"

 A&W Blog Home



140 Commonwealth Avenue, Chestnut Hill, MA 02467 — Email: agework@bc.eduPhone: 617.552.9195 — Fax: 617.552.9202