It’s a critical moment for Social Security–and a confusing one for the 65 million people currently receiving its benefits and those who hope to join their ranks in the future.
Lawmakers, think-tank prognosticators, and cable news anchors are hotly debating whether Social Security is going bankrupt. The answer is no–but it does face a serious shortfall. Congress needs to overhaul the program if it wants to avoid substantial benefit cuts 12 years from now. The need to raise the federal government’s debt ceiling this year, meanwhile, has turned up the heat on Social Security reform discussions, while also sparking fears that benefit payments could be disrupted later this year if the U.S. were to default on its debts.
At the center of this storm is Stephen Goss, Social Security’s chief actuary. His office sizes up the program’s future costs and income based on demographic and economic assumptions, calculating the potential impact of the myriad proposals that aim to overhaul Social Security.
This year, Goss will mark 50 years at Social Security, and he has been chief actuary for nearly half that time. Goss has seen many Social Security reform ideas–as well as some debt-ceiling crises–come and go. And he has long urged Congress to move sooner rather than later to bolster the program’s financial position, while studiously avoiding endorsement of any particular fix. At this point, Goss said, “I’ve been involved in this for so long, I don’t think I’m even capable of having a real preference for one approach versus another. The only real preference I and all of us at Social Security have is that we maintain the ability to pay scheduled benefits.”
MarketWatch spoke with Goss about Social Security’s current challenges, what he sees ahead–and what has kept him on the job for the past half-century. “Had you asked me 50 years ago how long I thought I’d be in this job, I wouldn’t have guessed 50 years,” Goss said. While administrations change, “dealing with people who have different perspectives but are all working toward doing the best for the American people is exciting.”
Excitement may be the last thing workers and retirees want from Social Security. But is the chief actuary frantic about the program’s future? Far from it. Here are 12 key takeaways from our conversation with Goss.
1. No, Social Security is not going broke.
Social Security’s combined retirement and disability trust fund reserves are projected to run dry in 2035, according to the latest annual report from the program’s trustees. (The retirement and disability trust funds are legally separate entities, but a hypothetical combined trust fund is used to assess the program’s overall health.) The trust fund reserves represent the difference between the program’s income and cost, accumulated over time: Payroll tax revenues go into the trust funds, and benefits and administrative expenses are paid from the trust funds.
That 2035 depletion date doesn’t mean people retiring in 12 years or more are doomed. “Many people have the impression that if the trust fund reserves were to become depleted, that would mean we’d reach a point where Social Security will run out of money,” Goss said. “What we really, really try to emphasize is that simply is not the case.” Even if the reserves are used up, he said, “we’d still have daily money coming in from Treasury from payroll taxes people are paying,” which would be sufficient to pay 80% of full scheduled benefits.
The projected trust-fund depletion date, he said, “is really just to show that we need action by that time.” And in the history of the program, he said, Congress has always stepped up to avert reserve depletion–most recently in 1995 and 2015, when the disability trust fund was on the brink of evaporating.
2. Kicking the can down the road is costly.
For years, Goss has urged lawmakers to step on the gas with Social Security reforms, laying out a simple menu of options. As he put it in Congressional testimony last June, “by 2035, the Congress will need to reduce scheduled benefits by about 25%, increase scheduled revenue by about 33%, or make some combination of these changes.”
Those choices may sound painful. But “if you enact changes a good bit before we have the necessity to do so, you have more options of what you can do and can phase them in more gradually,” Goss told MarketWatch. “And even best yet, you can give people advance warning of what kinds of changes they’ll be facing.” A classic example, he said, is a 1983 Social Security reform that raised the normal retirement age from 65 to 67. That change began taking effect 17 years later, for people who turned 62 in the year 2000, and was fully phased in just last year, for people turning 62 in 2022 and later.
3. Reasonable people disagree about how soon the program’s reserves could run dry.
A Congressional Budget Office report released in December projected that the combined Social Security trust fund reserves would run out in 2033–two years earlier than the date in the Social Security trustees’ report.
CBO’s assumptions have typically been more conservative than the Social Security trustees’, Goss said, in part because CBO has been assuming faster declines in mortality and higher rates of disability benefit applications. Those two factors would mean higher costs for the program and deplete the trust funds sooner. But in fact, death rates increased during the pandemic, and even prior to that, “mortality had not been declining as fast as some at CBO had imagined,” Goss said. Disability applications and benefit receipts have also fallen below expectations, even during the pandemic.
“I think on balance the Trustees’ estimates we put together have been more consistent, and I think more accurate” than the CBO’s, Goss said. The future, of course, is uncertain, he added. “Neither the trustees’ nor CBO projections are unreasonable, but they do present slightly different views of what many of these parameters will look like.”
4. Recent economic trends suggest that this year’s Social Security projections could look even worse than last year’s.
Assumptions for the last trustees’ report, which appeared in June 2022, were developed in January and February of last year. Since then, “clearly there has been greater expectation of the possibility of an economic slowdown as we’re moving into 2023,” Goss said. If that comes to pass, he said, “that probably will be a slight negative for trust fund projections, but we have a long way to go before we have anything clear on that.”
5. Raising the normal retirement age isn’t a cure-all for Social Security.
In 2040, the ratio of people over age 65 to people age 20-64 is expected to be roughly double the ratio in 2008. The growing disconnect between the number of people collecting Social Security benefits and the number paying into the system affects the ability of payroll taxes to cover the costs of the program.
Some lawmakers have suggested addressing the trend by raising the normal retirement age. If the changing age distribution was largely a result of people over 65 or 70 living longer, raising the retirement age in sync with that longer longevity could fix most of the problem–but that’s not the case, Goss said. The main cause, he said, has been a drop in birth rates after 1965 and not people living longer.
A proposal to raise the retirement age by one month every two years, up to age 69 illustrates the underwhelming impact of raising the retirement age to be consistent with longer life expectancy.. That would maintain the ratio of life expectancy at the normal retirement age to the number of potential years of work from age 20 through normal retirement age–which is critical for the financing of Social Security, Goss said. But it would reduce the program’s long-term shortfall by only 18%, he said.
6. Raising or eliminating the cap on earnings subject to payroll taxes could make a big difference–depending on how it’s implemented.
A growing concentration of earnings among the highest earners is chipping away at Social Security’s health. Only earnings up to a certain cap–$160,200 for 2023–are subject to the payroll taxes that finance Social Security, and only earnings below that threshold are used to determine benefits. The taxable cap is adjusted based on average wage growth in the economy. But today, roughly 18% of total earnings in jobs covered by Social Security exceed that taxable cap, up from 9% 40 years ago, while the percentage of workers with earnings above the cap has remained relatively steady at about 6%.
Various proposals have suggested raising the taxable threshold so that about 90% of earnings would again be subject to payroll taxes. Depending on whether those additional earnings are included when determining benefit levels, that change could reduce Social Security’s long-term shortfall by about 20% to 31%, Goss said. If the cap were eliminated altogether, without any benefit credit for the excess earnings, that change alone would eliminate about three-quarters of the shortfall and extend the reserve depletion date out to 2067, he said.
7. Will Social Security’s annual inflation adjustments keep up with the actual cost of living? It’s all in the index.
Social Security’s cost-of-living adjustments have been critical for many beneficiaries in the past couple of years, as a 5.9% benefit bump for 2022 and 8.7% increase for 2023 helped retirees keep up with soaring inflation. Currently, those adjustments are based on the CPI-W, which reflects prices paid by urban wage earners and clerical workers–and there’s an ongoing debate about whether that index best reflects inflation’s impact on retirees.
One alternative: The CPI-E, which reflects the spending patterns of households with people age 62 or older–leading to higher weights for medical care, for example. “The argument for the CPI-E is that most of our beneficiaries are people over 62,” Goss said. “Historically on average, the CPI-E has provided a slightly higher increase than CPI-W.”
Another option: The chain-weighted CPI-U, which is based on prices paid by a broader population–all urban consumers–and compared with traditional CPI, more fully accounts for substitutions consumers may make due to relative price changes. A key difference with the chain-weighted CPI, Goss said, is that it picks up changes in the distribution of purchases across items that are not substitutable for each other. “For example, if the price of a car you were considering goes up a lot, but the big-screen TV you were going to buy for the next Super Bowl does not go up in price, you might be more inclined to buy the big-screen TV than the automobile. That would cause the CPI on a chain-weighted basis to grow somewhat slower,”–resulting in smaller cost-of-living adjustments and trimming the costs of the program.
One issue, he said, is that while people who are fully employed may be in a position to choose between big-screen TVs and cars, a lot of Social Security beneficiaries are not. “There’s a question of whether the chain-weighted CPI is really appropriate and applicable for people receiving benefits that are subject to our cost of living adjustments,” he said.
8. COVID’s long-term impact on Social Security is still cloudy.
The pandemic’s near-term effects on Social Security’s finances were largely from the 2020 recession, which was followed by a dramatic economic recovery. “We didn’t lose much in that regard,” Goss said. But “the long-term effects are really not clear.”
Some people have suggested that the large number of COVID deaths among people who were already medically compromised would result in fewer deaths from those generations in the relatively near future, increasing Social Security’s costs. But “we’ve not been seeing that,” Goss said. “The death rates continue to be somewhat higher than we’d otherwise expected.” And a potentially offsetting factor, Goss said, is that “people who have been infected will probably carry with them some negative effects in their physiology and perhaps psychology that would cause them to have death rates slightly higher than they would have been.” Long COVID, he added, is much understudied. And in terms of the overall long-term impact on Social Security, “the uncertainty is exceedingly large.”
9. Disability applications have defied all expectations.
Disability applications have declined substantially since 2010. “And the question is, was this something fundamental in our population?” Goss asks. “Are they healthier? Has the nature of work changed such that people who have some limitations are better able to find work? We’ve been estimating that disability applications would turn around and start rising, and we’ve not seen that to date.” It’s “a gigantic question,” he said, “about what is really happening.”
Even under the relatively conservative estimates in the latest trustees’ report, Goss said, the disability trust fund is projected to be able to pay full scheduled benefits beyond the year 2100.
10. What does Social Security have to do with the federal debt? Not as much as you might think.
House Speaker Kevin McCarthy, Republican of California, has said that Social Security cuts are “off the table,” but other members of his party have raised the prospect of pushing for Social Security reforms as part of talks about raising the debt ceiling or in broader discussions about reining in federal spending.
Social Security trust funds have no borrowing authority, “so if in fact we were to deplete our reserves and not have a change allowing us to fully pay benefits in the future, we’d not be able to pay benefits above the 80% level” outlined in the trustees’ report, Goss said. Under a budget-scoring convention used by the CBO, however, “what’s typically been assumed is that there would in fact be an unprecedented change in the law” allowing money to be provided by the Treasury’s general fund for full payment of benefits–a scenario that would increase the debt borrowed from the public, Goss said. But “it is not current law, and that’s something we try to point out in all of our projections.”
The bottom line: Social Security “is really not a key player in the discussion of what’s going to be happening with debt in the future” or the debt subject to the debt limit, Goss said.
11. Goss has seen this movie before–and he’s not fretting that the debt-ceiling fight will disrupt Social Security benefit payments.
Past debt-ceiling standoffs have also raised fears that Social Security benefit checks could be disrupted. Goss said he’s not sweating it, for two reasons.
“First of all, the peril of failing to raise the debt ceiling would be so great in so many areas outside Social Security, we feel very confident Congress will do as it has in the past and meet that objective,” he said.
Secondly, when Social Security draws on the trust funds to help pay benefits, the impact on the national debt subject to the debt ceiling is essentially a wash. The Social Security trust funds “are money that has been loaned to Treasury and are therefore part of the total debt subject to limit,” Goss said. “At any point in time when money is redeemed from the trust funds to pay benefits–extracted from the trust funds by redeeming securities–that lowers the amount of debt subject to limit. Treasury then has to issue more debt to the public. That becomes a balance.”
12. The proverbial “smoke-filled room” has played a role in past Social Security reforms–and could do so again.
Goss worked closely with past commissions examining potential Social Security reforms, including the Simpson-Bowles commission created in 2010 and the Greenspan commission of the early 1980s, which led to the 1983 Social Security reforms.
“These commissions have historically been a very effective way of getting people from both sides of the aisle and people from the business community also talking about potential changes to Social Security,” Goss said. In both cases, he said, “a lot of it was behind closed doors,” which allows people to discuss the possibilities more openly. “Such backroom discussions can be very positive in getting toward consensus,” he said. Compromises are made, and “nobody gets everything they would prefer. And our expectation would be on the next big change in Social Security–before 2034 we hope and presume–there will be similar kinds of discussion, whether that’s a commission behind closed doors or largely in front of the public. Some combination of the two is probably a good idea.”