How much should the Congress be interested in the next decade?

In simple terms, we would be facing a major crisis of poverty among the elderly without the financial protection afforded to most older people by social security.

Big problems wait for social security

However, the largest social program in the US is also facing its biggest test since its inception, at least according to the latest annual report of the board of directors.

Published in early June, the directors' report estimates that social security will reach an undesirable inflection point this year. For the first time since 1982, it will spend more than $ 1.7 billion in revenue. This may seem like a huge net cash outflow, but it's actually peanuts compared to the $ 2.89 billion currently held in asset reserves.

The problem is that, over time, these net cash outflows will increase very quickly. If nothing were to be done to solve this problem, it is expected that the program will absorb its cash surplus by 2034. At that time, a reduction in benefits of up to 21% may be required to maintain payments.

Do you blame Congress for the right reason?

The way in which social security has entered this mess often provokes heated controversy among the public – and very often, it is the Congress that catches the blame. While I fully agree with the US public to blame the lawmakers in Washington for partial liability, I do not agree with the reason why this blame is laid.

Blame it on Washington for the right reason: inaction.

Republicans and Democrats each have a key solution that would completely solve the estimated $ 13,200 billion shortfall in social security between 2034 and 2092. Republicans would gradually increase the retirement age, thus reducing lifetime payments for future generations of workers, while Democrats would suppress or increase incomes. the ceiling on the payroll tax, forcing the rich to pay more into the system.

More: Does social security inflate the federal deficit?

Unfortunately, since none of the parties have an incentive to work with each other to find common ground, the stalemate persists. The longer it lasts, the harder the solution will be for working Americans and potentially even retirees.

The bad reason for blaming Congress is the mutually advantageous loan agreement between Social Security and the federal government. A common belief, at least in social media, is that the federal government has raided or stolen funds from Social Security assets to fund wars and other harmful activities. This has almost no hint of truth.

Social Security and the Federal Government Have a Mutually Beneficial Loan Agreement

In fact, the law requires the Social Security Administration to invest net cash surpluses in special issue bonds and, to a lesser extent, in debt certificates. Basically, the Social Security Administration lends money to the federal government, which in turn pays interest to the social security program each year.

For the federal government, this arrangement is advantageous because it means you do not have to rely on foreign countries to buy even more debt. The borrowing capacity of nearly $ 2 trillion has provided Congress with a quick source of loan capital that it can use to pay for any of its budget items. This means that borrowed funds could be used to finance defense expenditures, as well as infrastructure, education, health care, transportation or any other federal spending project.

More: Social Security: 5 Smart Ways to Get More Benefits

At the same time, social security recovers every year a good part of the interest generated by the interests of its "loans". Last year, Social Security collected $ 85.1 billion from the federal government in interest income, which should generate a lot of money over the next decade. The following is an overview of the estimated net interest payments of directors by the federal government to Social Security between 2018 and 2027 (based on the intermediate cost model):

• 2018 $ 83.1 billion
• 2019 $ 82.2 billion
• 2020: $ 81.8 billion
• 2021: $ 80.9 billion
• 2022: $ 79.8 billion
• 2023 $ 79.8 billion
• 2024: $ 80.0 billion
• 2025: $ 79.4 billion
• 2026 $ 79.3 billion
• 2027: $ 78.3 billion

If you take that into account, in the next decade, the social security program will bring about $ 804.4 billion in federal government interest. Tell me again that this is not a good thing for the program.

More: 3 Reasons Why You Should Take Social Security Benefits At Age 62

You will note, however, that net interest income collected is expected to decline gradually from $ 83.1 billion to $ 78.3 billion over the 10-year period. Despite the expectation of higher interest rates and therefore higher yields, Social Security's asset reserves are likely to decline over this period, which will lead to higher yields through higher yields. a smaller base of cash surpluses.

Do not forget either that these interest income could disappear completely if the social security assets were exhausted.

In summary, the federal government and social security have a good arrangement under way. If Congress can go beyond its political divisions, this arrangement could last for years, even decades.

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