Category: Helping Hands Blog
Published: Monday, 27 April 2015 11:53
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wallet in viseSocial Security Disability Fund Running Out of Money

By now you have probably heard that the Social Security disability trust fund is predicted to become insolvent (run out of money) as early as late this year or sometime in 2016. How will this affect you if you are receiving disability benefits?

 

UPDATE: October 2015- The House and Senate passed a bill allowing for continued funding of Social Security benefits.

First things first

The Social Security disability fund was established in the middle of last century as a safety net for people who become sick or have an accident causing them to be unable to work gainfully.  Each person’s earnings are taxed and the employer also pays an amount to a fund that disability benefits are then paid back out of. For the majority of the time since 1980 the fund received more money than it paid out, however, starting in 2008 that trend reversed significantly.

Factors in the loss of funds

As the nation’s economy began collapsing a few years ago millions of people lost their jobs. This caused much less money in Social Security taxes being collected. At the same time, there has been a spike in the number of people receiving benefits. Currently about 14 million people receive disability benefits in the U.S.  The average person on disability received $1,146 last November taking over $10.2 billion from the fund that month. So, with the decrease in money entering the fund and more people taking from the fund, it is being depleted.

I am receiving disability. How will fund depletion affect me?

Unless Congress acts to shore up the fund, the immediate affect will probably be a cut in benefits by about 20% or almost $230 using last November’s average. This will, of course, make life more difficult for people whose income and/or expenditures cannot be adjusted accordingly.

What can be done?

Congress has several main options available. One of the options available is raising taxes. Of course this is the first thing politicians tend to do to solve any budget crunch.  Social Security tax already takes 12.4% of wages away from the economy and, unless the rate increase is significant enough, then it would still take time to replenish the fund in a still slow economy. For this option to be successful, the tax needs enacted sooner rather than later.

Another option that has already been done on occasion is to pull money from the Old-Age and Survivors Benefit Fund (the fund that pays Social Security after age 62) to cover the gap. However, this fund is also facing insolvency sometime in the 2030’s so removing billions of dollars from that fund will cause it to deplete even sooner. In a move to prevent this, in January, the House of Representatives passed a bill that stated Congress could not take money from one fund to pay the other during 2015’s Congressional Session.

A third option is to simply fund Social Security disability from the general income taxes. The U.S. Government is already operating at a deficit with a total deficit of over $18 trillion projected by the end of this year. Therefore it would only make the government’s financial position more untenable in future years.

A fourth option is to make the qualifications for receiving benefits much more stringent, thus potentially disqualifying people who are already receiving benefits and slowing the number of people starting to receive benefits. This option will take a while to make a difference in the fund since it takes many Americans over two years to be awarded benefits. 

It’s difficult

The choices facing Congress are difficult and no option will be supported by everyone. No matter what happens someone and some groups are going to be upset. But everyone does agree that action is necessary to prevent a cut in benefits looming around the corner. Based on recent history over the past few years, most likely little will be done until insolvency occurs or is very close because both political parties stand to be able to get the most concessions from the other party to prevent it from happening at the last moment. The one caveat to the situation is that it would seem that neither party wants to risk the political fall-out if 14 million people get their benefits cut in a major election year. Thus, some sort of action should be expected before the cuts take place. Until Congress decidedly acts to solve this problem you can expect to hear much more about it on the news, especially as we enter 2016.

 

 

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