It’s time for the annual ritual of understanding and interpreting the Social Security Trustees Report. The 2022 report analyzes and summarizes the latest actuarial status of the trust funds that support Social Security’s retirement and disability programs, as well as the fund that supports the Hospital Insurance (HI) portion of Medicare.

Let’s look at two parts of the annual ritual.

Annual ritual Part 1: Misconceptions that Social Security will go broke

The trustee report estimates the future year when the Social Security trust funds will be exhausted. To prepare this calculation, Social Security’s actuaries project the amounts of future benefits paid each year under the current program as well as FICA taxes collected from current and future workers.

In the 2022 Trustee Report, the actuaries project that the combined retirement, survivors, and disability trust funds will be exhausted in the year 2035, one year later than reported in their 2021 report. They also report that the HI fund will be exhausted in the year 2028, two years later than reported in their 2021 report. The report cites the strong economic recovery as the reason these dates have been pushed back.

The trouble is, many people think that Social Security will become broke or go bankrupt when the trust funds are exhausted, and they assume they’ll receive nothing from Social Security after that date. Some media headlines perpetuate this misunderstanding.

For example, one recent headline stated “Go-broke dates pushed back for Social Security, Medicare.” The story underneath this headline neglected to say that when the Social Security trust funds are exhausted, the actuaries project that 80% of benefits could still be paid from FICA taxes collected by workers in the year 2035. That’s because there are two sources of funding for Social Security’s benefits: the Social Security trust funds, and the FICA taxes paid by workers each year.

FICA taxes collected from workers pay for most future benefits, while the trust fund is a supplemental source of funding benefits.  Even if the trust funds are exhausted, Social Security will still collect FICA taxes from workers, which will then be used to pay benefits to retirees and beneficiaries.

While it would definitely be bad news if you received a 20% reduction in benefits in the year 2035 because the trust funds become exhausted, you wouldn’t receive nothing from Social Security. You’d still be receiving most of your benefits.

By the way, the actuarial projections assume that Congress will do nothing in the future to change the programs so that retirees and beneficiaries can continue to receive the benefits they expect. Which leads us to Part 2…

Annual ritual Part 2: Politicians do nothing

Each year the Trustees Report describes changes in the program that could restore long-term actuarial balance to the system. In concept, it’s not rocket science: either the growth of future benefits paid by Social Security needs to be curtailed, FICA taxes need to increase, or some combination.

Each year the Trustees Report urges policy makers to take action sooner rather than later. The 2022 trustee report is no exception, and it includes this statement: “Taking action sooner rather than later will allow consideration of a broader range of solutions and provide more time to phase in changes so that the public has adequate time to prepare.”

Each year a few politicians make sincere statements about needing to make changes in Social Security. However, most politicians stay silent, hoping and betting that most voters will forget and forgive their silence. After all, if the trust funds become exhausted in 13 years, most likely that won’t happen on their watch.

Most of you will be alive in the year 2035. It’s an important part of your retirement planning to be informed about Social Security’s financing and vote accordingly.