How bad can things get for Social Security? How fast could it happen?

Millions of senior citizens worry about this in the wake of the claims and counterclaims that have become part of the Social Security reform media blitz. While no one knows the future, the Social Security Trustees make reasonable estimates every year in their annual report. So let's take a look at it.

I've gone through the report asking what the worst-case scenario would be. I can tell you this: if you are already retired you don't have a problem.

But if you are younger, you can be sure that Social Security won't do for you what it did for your parents. Indeed, if you're 40, expect a 30 percent cut. If you're 30, expect a 37 percent cut. If you're 20, expect a 40 percent cut.

That's better than nothing, which is what many young people expect. But it has grievous implications for elderly poverty in America.

Here's the basis for the Worst Case Scenario. The Social Security Trustees make three sets of estimates each year:   an optimistic low cost estimate, their most likely intermediate estimate, and their less optimistic high cost estimate. The major differences are small changes in wage growth, death rates, and birth rates.

As a practical matter, their intermediate estimates have trailed advances in life expectancy and declines in birth rates. So I took their high cost estimates as the basis for the worst-case scenario.

The Trustees also estimate the income and expenses of Social Security with and without the benefit of interest income (or principal) from the Trust fund that we've all been paying extra taxes into since 1983. Since we are now borrowing money from other countries to finance the federal deficit, the worst case scenario assumes that the Social Security Trust fund is the equivalent of a roach motel--- our money goes in but it doesn't come out, at least not in benefits. Basically, our friends in Washington have spent the money and will do anything to avoid having to borrow it again.

If you make those assumptions, the table below shows the disappearance of the Social Security surplus between now and 2013, followed by a slow but relentless reduction in benefits as commitments continue to exceed income.

  
The Worst Case Scenario For Social Security
This table uses the high cost assumptions for Social Security income and benefit commitments. Dollar figures in billions.
Year Income Cost Ratio of income to cost Age today to retire at 65

2004

$560

$503

111.3%

na

2005

$597

$531

112.4%

65

2006

$631

$560

112.7%

64

2007

$658

$590

111.5%

63

2008

$695

$632

110.0%

62

2009

$749

$691

108.4%

61

2010

$798

$751

106.3%

60

2011

$846

$810

104.4%

59

2012

$892

$873

102.2%

58

2013

$938

$939

99.9%

57

2014

$986

$1,009

97.7%

56

2015

$1,037

$1,086

95.5%

55

2016

$1,089

$1,169

93.2%

54

2017

$1,144

$1,259

90.9%

53

2018

$1,201

$1,356

88.6%

52

2019

$1,260

$1,459

86.4%

51

2020

$1,322

$1,570

84.2%

50

2025

$1,621

$2,224

72.9%

45

2030

$2,105

$3,056

68.9%

40

2040

$3,311

$5,255

63.0%

30

2050

$5,124

$8,540

60.0%

20

2060

$7,841

$13,900

56.4%

10

2070

$11,928

$22,582

52.8%

0

2080

$18,067

$36,064

50.1%

Unborn

Source: Social Security Trustees Report, 2004
  

Some readers will view this as altogether too bleak, arguing that the growing Social Security Trust fund will bail out the program until 2042 or later. In fact, these figures are still optimistic because they don't take into account the rising burden of the Medicare premium on Social Security benefits. With the recent 17 percent increase in the Medicare premium, the net increase in Social Security benefit many retirees will see is shrinking. Continued at 17 percent, it would eventually decrease the net Social Security benefit.

On the web:

The Social Security Trustees Report

OASDI cash basis estimates, intermediate

OASDI cash basis estimates, high cost