2021 Social Security Trustees Report 

The most recent Social Security Trustees report was released on August 30, 2021–the latest report in history. The annual report explains the current financial status of the Social Security system and outlines potential future paths for the program. Often, it recommends changes and includes an estimate of how much change would be necessary to put the system on stable long-term footing. On the surface, the report didn’t seem as ominous as many predicted in would be. However, there are a few important things for advisors to note in the 2021 Social Security Trustees report.


Important Takeaways from the Report

The most recent trustee's report suggests that the old age survivors and disability insurance (OASDI) trust fund will be depleted in 2034. The prior prediction was 2035. Under the combined OASDI trust funds, 78% percent of benefits would be payable. The OASI and OASDI are separate trust funds. Historically we've seen greater shortfalls in the disability insurance trust fund than we have in the old age survivor insurance trust fund, so Congress allocated money from the trust funds effectively blending them together. Congressional action is required to make an allocation from one trust fund to the other. In the absence of congressional action, they are separate trust funds. If we were to focus just on the old age and survivor insurance depletion date, that date went down to 2033 from 2034 and only 76% of benefits are payable.

A 3.36% increase in FICA tax right now would prevent this kind of a situation. It would likely be split half between the employee and half between the employer. Self-employed individuals would pay the full amount. If the taxes were increased at the depletion date, it would require a 4.2% increase to completely meet the need for promised benefits. That number has gone up substantially over the years as the problem has become bigger.


Assumptions in the Report

There are a few unexplained changes to the assumptions in the report, that leave may leave many Social Security experts scratching their heads.

  • Significant estimated increases in labor-force participation and fertility.
  • Projected inflation at 3.06%, in spite of the fact that current estimates for 2021 inflation are coming in near 6 percent. It then assumes a 2.4% inflation figure thereafter. If inflation remains higher than projected, the trust fund depletion date could be further negatively impacted.
  • Assumed 2.73% wage growth for 2020 and 6.22% for 2021, which is dramatically higher than recent averages.

All of this is to say, while the report seems relatively mild, more dramatic changes may be on the horizon depending on the accuracy of some of these predictions. Especially when you consider the disclosure that accompanies the report.

“The pandemic and precipitous recession have clearly had significant effects on the actuarial status of the OASI and DI Trust Funds, and the future course of the pandemic is still uncertain. The Trustees will continue to monitor developments and modify the projections in later reports.”

In October/November some of the updated figures will be announced, and financial advisors should pay close attention to the new average wage index (AWI) and the new cost of living adjustment (COLA).


The Future of Social Security

Even in the absence of congressional action, it's important to remember that about 76% of benefits are going to continue to be payable just from current tax revenues.  The Social Security benefit cut calculator in Social Security Timing® allows you show clients the impact that cuts would have on their specific retirement strategy. It has been updated to reflect the new predictions from the Social Security Trustees, and the year 2033 is now displayed as the default. You can try it out for free. Start your 10-day free trial of Social Security Timing. Educate clients on the relevant details and nuances from the Social Security Trustees report. Help them to prepare for an uncertain future and prevent them from claiming early out of fear.

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