1. Is Social Security really "exhausted?" Not at all
By Mark Miller
SUBMITTED BY TOM VILORD, PRESIDENT – VILORD WEALTH ADVISORS,
TURNERSVILLE, NJ
INFO@VILORDWEALTH.COM, 877-VILORD1
CHICAGO (Reuters) - It's rare to see a federal official publicly beg reporters to get a story right, but the
commissioner of the Social Security Administration seemed ready to get down on his hands and knees at
a Monday press briefing. Michael Astrue was cautioning journalists not to scare the public about the
meaning of the word "exhaustion."
"Please, please remember that exhaustion is an actuarial term of art and it does not mean there will be no
money left to pay any benefits" he warned in issuing the trustees' annual report on the financial health of
the Social Security program.
"After 2033, even if Congress does nothing, there will still be sufficient assets (from payroll taxes) to pay
about 75 percent of benefits. That's not acceptable, but it's still a fact that there will still be substantial
assets there," Astrue insisted.
This year's report shows some acceleration of the drawdown of Social Security's vast trust fund reserves .
Absent Congressional action, the trust funds of the retirement and disability programs are expected to be
exhausted in 2033 as baby-boomer retirements accelerate - three years sooner than projected a year
ago.
But Astrue went out of his way to emphasize that the program is far from broke. Social Security took in
$69 billion more than it spent last year, according to the report, when you include tax receipts and interest
on bonds held in the Social Security Trust Fund (SSTF). The SSTF had reserves of $2.7 trillion last year.
Yet the press plowed right ahead with stories warning that the Social Security retirement program is
running out of money. "There won't be much money left for you" after 2033, warned a public radio
reporter - a line that pretty well summed up the coverage and nearly forced me to run my car into a ditch.
Americans need to get this right, because Social Security is the primary source of retirement security for
most Americans -- and it will be even more important in the future as we continue to dig our way out of the
rubble of the Great Recession.
So, what's really going on with Social Security?
1. Social Security isn't running out of money.
The long-range actuarial shortfall is projected to be 2.67 percent of taxable payroll - in other words, 2.67
percent of all the earnings subject to Social Security contributions. That's a modest shortfall - and it
fluctuates over time due to economic cycles and changes in assumptions about growth in taxable
earnings. For example, the projected year of SSTF exhaustion was as far off as 2042 in 2003 in the wake
of the dot-com bubble; it was as close as 2029 in 1994 due to changed expectations about real wage
gains.
2. Yes Virginia, there is a Trust Fund.
Social Security's critics love to argue that the SSTF is a myth, but it's not. Although Social Security was
designed as a pay-as-you-go program, every penny it receives is credited to the SSTF, which has been
building enormous reserves following benefit cuts enacted in 1983.
The Trustee report confirms - again - that the surplus funds are invested in "special issue Treasury

2. bonds" and that they are "full faith and credit" obligations of the government to Social Security. Since
Social Security can't borrow money by law, it uses those reserves to pay benefits whenever cash on hand
runs short.
3. This year's news is not about our aging population.
The accelerated SSTF exhaustion date stems from two factors: a 1.6 percent drop in taxable earnings
due to the ongoing depressed economy, and a 3.6 percent cost-of-living adjustment awarded for this
year.
Our aging demographics do play a role in the longer range imbalance after 2033, because we have not
raised revenue sufficient to match the projected growth in our retired population.
"The choice is to either reduce benefits 25 percent, or raise revenues 33 percent to adapt," says Steve
Goss, chief actuary of the Social Security Administration. Making reforms sooner rather than later would
allow for a more gradual phase-in, giving the public plenty of time to plan and adjust accordingly.
I'm in favor of a modest, graduated payroll tax increase. Social Security benefits are modest, averaging
$1,230 per month this year. It's the main source of income for most people over age 65 - more than half
for nearly one in two married couples and two in three unmarried individuals, according to the National
Academy of Social Insurance.
A gradual increase in payroll taxes over the next decade would eliminate a sizable portion of the
imbalance; another approach is to lift or remove entirely the cap on wages subject to payroll taxes, which
currently is set at $110,100.
Perhaps that won't be too exhausting an idea for Congress and the media to embrace.
(The writer is a Reuters columnist. The opinions expressed are his own.)
(Editing by Beth Pinsker Gladstone)
SUBMITTED BY TOM VILORD, PRESIDENT – VILORD WEALTH ADVISORS,
TURNERSVILLE, NJ
INFO@VILORDWEALTH.COM, 877-VILORD1
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