Wednesday, May 13, 2009

Social Security - Trust fund empty by 2037

Social Security reported that the SS-OASI trust fund will be depleted in 2037. What they do not tell you is that a 1984 statute passed by congress to keep Social Security from gobbling up the general budget prohibits any general revenue taxes from being used to pay Social Security benefits. Another part of this legislation specifies that the trust fund cannot be drawn down below 20% of any given years expenses. This mean if SS-OASI’s expenses in 2037 were $2 Trillion, the trust fund minimum must be $200 Billion.

When this happens the trustees are required to promptly submit a report to Congress identifying the necessary changes to maintain the SS-OASI trust fund at a minimum of 20% of projected yearly expenses. In the absence of no changes, across the board cuts take place. The first cut I see is the elimination of COLA sometime in 2032 to 2033 followed by across the board cuts in social security benefits. The cuts will be small at first about 3% a year. By 2045 the initial benefit will be 20% of promised benefits. By 2055 the initial benefit will be 28% of promised benefits. Keep in mind that COLA will have been eliminated some time prior to this.

How many know that when the CPI is less than I think 1%, that COLA’s cease for three years? The CPI for this year could be negative. The expectation is that for the next three years, there will be no COLA for Social Security.

Since the trustees have projected the SS-OASI trust fund balanced to be zero sometime in 2037, where is this prompt report to congress identifying the changes needed?

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