The Economic Recession Won't Bankrupt Social Security

The Congressional Budget Office (CBO) projects that the Social Security Trust Fund will not be loaning the federal government as much money in the next decade as CBO had projected prior to the recession. If these estimates are accurate, the federal deficit may increase in the short term, but Social Security benefits will not be endangered.  The adjustment in projections due to current economic conditions may be a fiscal problem, but it is not a Social Security problem.

Unfortunately, some conservative analysts and policymakers have left the false impression that, as a result of the recession, Social Security is running out of money to pay benefits. One analyst argued that Social Security's surplus would nearly disappear by next year. Another proclaimed "Slowdown Slashes Social Security Surplus". All of this has caused a major newspaper to declare "Recession Puts a Major Strain on Social Security Trust Fund".

These assertions are incorrect or misleading for several reasons:

Social Security is not running out of money to pay benefits

According to the 2008 annual report of the Trustees of the Social Security system, Social Security is expected to pay full benefits until the year 2041. Thereafter, Social Security revenues will be sufficient to pay 78 percent of benefits. The recession will have little or no effect on this date. When the 2009 Trustees report is issued this spring, the 2041 date is likely to change by only about a year. This is because the length of the recession is very short compared to the long-range 75-year projection period for Social Security. Even before the recession, the Social Security Trustees took into account the impact of economic cycles in its long-term projections. The CBO, whose projections generally contain more optimist economic assumptions than the Trustees, estimates that Social Security will be able to pay full benefits until 2049. Any changes in this date as a result of the recession will likely be modest for the reasons stated above.

The "surplus" of assets in Social Security is not disappearing

Some Americans will be misled, whether intentionally or unintentionally, by those who assert that the "surplus in Social Security is disappearing". In fact, Social Security has two types of surpluses. When annual revenue to Social Security exceeds annual Social Security spending, the excess is known as the "annual surplus".  As those annual surpluses accumulate over time, they become the total "assets" of the Social Security Trust Fund. Some people refer to the accumulated assets in the Social Security Trust Fund as Social Security's surplus. Thus, Americans may incorrectly conclude that CBO's reductions in the projected annual surpluses over the next few years means that Social Security's total assets surplus, which is currently $2.5 trillion, is disappearing in the short term and that the Social Security would soon be unable to pay benefits. In fact, even with the recession, the assets held by the Trust Fund will continue to permit payment of full benefits until about 2041. The projected reductions in the "annual surpluses" are not a problem for Social Security.

CBO's projected reduction in "annual surpluses" as a result of the recession will mean that the federal government will be able to borrow slightly less money from Social Security.

According to CBO, the federal government will be able to borrow $51 billion less for FY 2010 than projected before the recession.  That amount is only a tiny fraction of the $1.4 trillion that the federal government is projected to borrow in FY 2010.

Current economic conditions have had a devastating effect on the retirement savings of millions of Americans, leaving them with significant reductions in their 401(k)s and other retirement vehicles. Social Security was created in times much like today to provide Americans with a foundation of security they could count on in uncertain economic times. Social Security smoothes the risks of these economic cycles over large groups of people and long periods of time, and it remains the most secure retirement income in America .

Government Relations and Policy, April 2009