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I can drag up a bunch of different articles either claiming that the US Social Security system is or is not headed for insolvency. The most recent reference to the concept was in a PBS interview with John Bogle:

I start off, simply put, with Social Security, which has to be changed in gradual, small ways to become solvent again.

Most of the interview is discussing investments and retirement planning so this little blip isn't terribly significant to the interview as a whole. But the concept keeps popping up over and over again and it can be hard to sift through the various political biases in play.

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In these discussions, the intended meaning of "insolvent" (or "bankrupt") is incredibly important. Please ask the question more clearly. I feel like the people making this claim are using a very loose definition of those terms, and then encouraging their audience to draw conclusions that are not valid, based on analogy to personal and corporate insolvency/bankruptcy. The definition of insolvency is "unable to pay debts owed" -- the issue here is whether SS benefits quality as "debt". I don't think that they do...they are an entitlement that the government can take away at will. –  adam.r Aug 25 at 4:21
    
@adam.r - Your are incorrect in your definitions. The correct financial term is "liability", which is not necessarily debt. For example, payouts on insurance policy are also liability (and determine insurance company's solvency) but aren't a debut. Either way, the claim is about the math, not law or definitions. "Do projected liabilities exceed projected asset inflows"? –  DVK Aug 27 at 18:22

2 Answers 2

up vote 23 down vote accepted

Yes, under the current rules and best available projections from US Federal government.


Social Security Administration's own projections from SSA's Office of the Chief Actuary:

Scheduled and Payable Benefits

Scheduled Benefits are those that current law promises. Payable Benefits are those that projected Trust Fund balances can finance. Payable benefits are an across the board reduction from Scheduled Benefits in a given year starting with the Trust Fund exhaustion in 2036, therefore Payable Benefits and Scheduled Benefits are the same in 2030. The SSA Actuaries estimate that the across the board reduction under a Payable baseline will be 21.8 percent in 2050 and 23.2 percent in 2070. These reductions would apply to the final benefit amounts, not the average indexed monthly earnings (AIME) or the primary insurance amount (PIA). Both the Scheduled Benefits tables and the Payable Benefits tables compare the respective baseline to a policy option built on top of Scheduled Benefits


As of 2013, CBO (Congressional Budget Office) projects that revenues will consistently lag outlays: http://www.cbo.gov/publication/44972

Their conclusion:

CBO projects that under current law, the DI trust fund will be exhausted in fiscal year 2017, and the OASI trust fund will be exhausted in 2033.

If a trust fund’s balance fell to zero and current revenues were insufficient to cover the benefits specified in law, the Social Security Administration would no longer have legal authority to pay full benefits when they were due.

In 1994, legislation redirected revenues from the OASI trust fund to prevent the imminent exhaustion of the DI trust fund. In part because of that experience, it is a common analytical convention to consider the DI and OASI trust funds as combined. Thus, CBO projects, if some future legislation shifted resources from the OASI trust fund to the DI trust fund, the combined OASDI trust funds would be exhausted in 2031.

The full publication has methodology and the data tables.

enter image description here


UPDATE:

To further help illustrate the "headed" part, here is the projected SS Trust Fund reserve depletion years over 1985-2014 years from Social Security Adminitration "2014 OASDI Trustees Report" (Table VI.B1.—Long-Range OASDI Actuarial Balances  and Trust Fund Reserve Depletion Dates as Shown in the Trustees Reports for 1982-2014, Page 159).

I plotted the years as well as the trendline in Excel based on the last column in that table.

enter image description here

I dropped 1982-1984, since 1982 projected 1983 insolvency while 1983-84 projected no insolvency at all; so the chart would go to +infinity if these were included.

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Worth noting: The SSA itself agrees with this, but points out that those estimates are only valid under current law. In 1982, the trust fund ran out of money and laws were passed to let it borrow from the rest of the government and stay solvent. I would personally lead the answer with: "Yes, under current law." –  Bobson Aug 21 at 17:36
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@Bobson - Well yeah. If you give enough extra money to any insolvent entity, it will become not insolvent. –  DVK Aug 21 at 17:37
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Which is why this answer is entirely right that the SSA is heading there. The people who say that it's outright doomed aren't necessarily right, but they're not necessarily wrong, either. There's just too much that can change. –  Bobson Aug 21 at 17:42
    
If I'm not mistaken the situation for medicare is even more dire. Do you have those figures as well? –  Dean MacGregor Aug 21 at 19:56
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@DeanMacGregor - not really. Different funding, different accounts, different projection methods –  DVK Aug 21 at 20:05

I tried to answer this question previously, and received a considerable amount of criticism. @DVK Yes, your understanding of financial terms is correct. However, Social Security does not use terms as you think it does. Solvency in Social Security considers the cashflows over 75 years. You can see this on page 159 of the Trustees Report. Social Security was solvent in 1983 and is not in 1985 and later. It is a definition within Social Security.

The writer has a simple question. The problem is that he misunderstands Bogle. Bogle is talking about solvency in the context of Social Security. The writer seems to be talking about in terms that DVK is using. Bogle is not saying that Social Security is not "headed for insolvency". He is saying that with changes we can achieve solvency in the context of Social Security. Two year later it isn't solvent anymore - and there are structural reasons for that.

DVK, I am not confusing solvent and solved. In fact, I separated the meanings clearly. Many people confuse these words because solvent does not mean in Social Security what it means in finance - as immutable the meaning there it may have. Social Security has its own accounting standards that are not like anything you have worked with. If it did, Social Security would be insolvent today with liabilities in excess of assets of 24.9 trillion - see page 192 of the 2014 Trustees Report.

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This is super interesting if true. You need to have sources to backup the claim that solvency means different things in this context. –  William Grobman Aug 26 at 22:44
    
@WilliamGrobman The word "solvent" appears in this table for the years 1983 and 1984: not to be confused with other years, which aren't defined as "solvent", because instead there's a year (in the future) in which the fund will become depleted. –  ChrisW Aug 26 at 23:02
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This answer could be improved if the definitions peculiar to Soc. Sec. were included, and contrasted with the commonly accepted definition in finance. –  Brian M. Hunt Aug 27 at 13:04
    
Please don't use the answer box to make comments and have a conversation. This isn't a forum. Use the feedback and the other answers to improve the quality of your answer to the question. If you believe it is an issue of misunderstood definitions, please link to the correct ones. –  Oddthinking Aug 27 at 15:30
    
Actually, I think that the table you linked 100% supports my reading. "Solvent" means that projected trust fund reserve won't deplete and become insolvent in specific year. Insolvent means that under projections, it WILL deplete. The table shows that the SS wasn't projected to be solvent since 1985; and the projections steadily worsen in shortening the date when insolvency arises. Solvent and insolvent apply to a specific projected year, NOT to "current situation", which is why the wording is "headed for" insolvency, not "isn't solvent". –  DVK Aug 27 at 15:57

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