When politicians talk about funding for Social Security, you can count on one thing-they'll disagree about how long the program will remain solvent. These disagreements are largely due to how the various politicians characterize Social Security's sometimes confusing income and trust funds. It's therefore useful to understand how the system is funded in order to cut through the rhetoric.
The Social Security Administration (SSA) is in charge of administering both old-age benefits and disability benefits, and each program has a separate trust fund. By far the larger of the two funds is known as the Old-Age and Survivors Insurance (OASI) fund. This is the fund that pays Social Security benefits to retirees, and at least in the short term, it is considered by the SSA to be "financially adequate."
The other fund is called the Disability Insurance (DI) fund, which pays Social Security disability benefits. This fund is not considered financially adequate in the short term, as it is currently giving out much more money than it is taking in. At the current rate, the DI fund will be exhausted in 2018-just seven years from now.
There are two reasons the DI fund is running low. First, revenues are down overall. Since payroll taxes provide Social Security's funding, when people are out of work, they aren't paying into the system. Second, applications for disability benefits are on the rise, having increased by five percent in just the last year alone.
With the short-term problems faced by the DI fund, Congress will need to act soon to continue to provide benefits. The expected solution is for the some money from the much larger OASI fund to be diverted to the DI fund. But even the OASI fund is slated to eventually run out in 2038 (or 2036 if some of it is diverted to DI).
Right now, the combined funds are taking in more than they pay out (a point duly noted by some politicians who minimize the problem). But with the baby boomer generation retiring in increasing numbers, the combined fund will be paying out more than it takes in by 2023-just twelve years from now. After that, without additional funding or better-than expected economic figures, the fund will decrease every year until around 2036, when it would run out entirely. At that point, the SSA would only have continuing tax income sufficient to pay about three-quarters of benefits.
