Money

Is Social Security Headed for Insolvency?

Although the situation isn't as dire as many claim, there's some bad news that you may not be aware of

By now, most of us have heard this projection: By 2035, taxes will only be able to cover 75% of scheduled Social Security benefits because reserves in the Social Security trust will be depleted, or close to it.

Understandably, that proclamation was enough to send people in a panic.

The good news is that the situation is not quite as dire for retirement benefits as many are making it out to be. After all, 75% is not the same as 0% — plus, there is still time for Congress to enact changes that could improve the situation.

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The bad news? There’s another element to Social Security that hasn’t grabbed quite as many headlines, but is in danger of becoming insolvent much sooner. The trust fund for Social Security disability benefits — which is not the same as the one that funds retirement benefits — is on track to be depleted between the end of 2016 and 2017, CNNMoney reports.

If Congress makes no moves, like adjusting tax revenue so that a larger portion goes toward disability, Social Security will only be able to pay 80% of promised benefits to the nearly 9 million people who currently receive disability payments. (Currently, the average payout is $1,146 per month.)

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Rather than allowing benefits to reduce, Elisa Walker, an income security policy analyst at the National Academy of Social Insurance, tells CNNMoney she thinks Congress will reallocate funding from the retirement trust to the disability trust between now and 2025. The problem with that maneuver, say critics, is that you’re robbing Peter to pay Paul — plus, it doesn’t provide a long-term solution to insolvency for either part of Social Security.

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One bright spot? Since 2016 is an election year, it could spur Congress to act on the issue as early as next year.

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