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What happens when Social Security runs out of money?

What happens when Social Security runs out of money?

Update: 2024-10-29
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This podcast delves into the complex relationship between Social Security and the national debt, examining the projected depletion of the Social Security fund within nine years and the potential for automatic benefit cuts. It highlights the growing national debt and its potential impact on the economy, discussing the projected increase in debt under both candidates' policies and the potential consequences of exceeding a certain debt-to-GDP ratio. The podcast also explores alternative measures of fiscal health beyond the debt-to-GDP ratio, introducing the concept of real interest payments as a share of GDP and arguing that this metric provides a more accurate assessment of the government's financial stability. Finally, the episode discusses the "accounting fiction" surrounding the projected depletion of the Social Security fund, arguing that while the current law necessitates benefit cuts, Congress can always change the law and that the looming crisis serves as a catalyst for addressing the program's long-term sustainability.

Outlines

00:00:00
Social Security and the National Debt

This episode discusses the potential impact of the upcoming election on Social Security and the federal debt. It explores the projected depletion of the Social Security fund, the potential for automatic benefit cuts, and the implications of increased government borrowing for the national debt.

00:02:44
Social Security's Financial Challenges and the National Debt

This episode delves into the financial challenges facing Social Security, highlighting the imbalance between incoming payroll taxes and outgoing benefit payments. It explains the projected depletion of the Social Security fund within nine years and the potential for automatic benefit cuts. It also examines the rising national debt and its potential impact on the economy, discussing the projected increase in debt under both candidates' policies and the potential consequences of exceeding a certain debt-to-GDP ratio.

00:06:51
Measuring Fiscal Health and the Accounting Fiction of Social Security

This episode explores alternative measures of fiscal health beyond the debt-to-GDP ratio. It introduces the concept of real interest payments as a share of GDP and argues that this metric provides a more accurate assessment of the government's financial stability. It also discusses the "accounting fiction" surrounding the projected depletion of the Social Security fund, arguing that while the current law necessitates benefit cuts, Congress can always change the law and that the looming crisis serves as a catalyst for addressing the program's long-term sustainability.

Keywords

Social Security Fund


The Social Security Fund is a trust fund that receives payroll taxes and pays out monthly benefits to retirees, disabled individuals, and survivors of deceased spouses. It is projected to run out of money within nine years under current policies.

National Debt


The national debt is the total amount of money that the U.S. government owes to its creditors. It is projected to increase significantly under both candidates' policies, potentially exceeding 143% of GDP by 2035.

Debt-to-GDP Ratio


The debt-to-GDP ratio is a measure of a country's national debt relative to its gross domestic product (GDP). It is often used as an indicator of a country's fiscal health, with higher ratios generally indicating greater financial risk.

Real Interest Payments


Real interest payments are interest payments adjusted for inflation. This metric provides a more accurate assessment of the government's financial stability than the debt-to-GDP ratio, as it accounts for the impact of inflation on the value of the debt.

Fiscal Summit


A fiscal summit is a meeting of government officials to discuss and address fiscal policy issues, such as the national debt, spending, and taxation. Social Security crises have historically served as catalysts for such summits.

Q&A

  • What are the potential consequences of the Social Security fund running out of money?

    If the Social Security fund runs out of money, it could lead to automatic benefit cuts of nearly 20%. However, Congress can always change the law to avoid these cuts, potentially by raising taxes or cutting spending.

  • How does the national debt impact the economy?

    A high national debt can put upward pressure on interest rates, making it more expensive for businesses and individuals to borrow money. It can also lead to higher inflation and a weaker economy.

  • What is a more accurate measure of fiscal health than the debt-to-GDP ratio?

    Real interest payments as a share of GDP provide a more accurate assessment of fiscal health, as they account for the impact of inflation on the value of the debt. This metric is less susceptible to fluctuations in GDP and provides a more stable measure of the government's financial burden.

  • Why is the projected depletion of the Social Security fund considered an "accounting fiction"?

    While the current law necessitates benefit cuts if the fund runs out of money, Congress can always change the law to avoid these cuts. The looming crisis serves as a catalyst for addressing the program's long-term sustainability, making it a useful "accounting fiction" for driving political action.

Show Notes

Social Security has thus far been self-sustaining—payroll taxes go into this big fund, which then pays out monthly checks. But the problem we have now is the money coming into that fund is not keeping up with the money going out.

The election hasn't been great for people concerned about the government's finances. The Committee for a Responsible Federal Budget estimates that Donald Trump's election proposals will speed up the rundown in the Social Security fund by a few years.

So, when Social Security runs out of money as it's projected to do ... could we just borrow more money? And if so, what would that mean for the already rising government's debt?

Today on the show, how worried should we be about Social Security and the federal debt? We explain a fresh indicator to assess whether or not America's getting too far in the red.

Related Episodes:
What does the next era of Social Security look like?
Iceberg ahead for Social Security

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What happens when Social Security runs out of money?

What happens when Social Security runs out of money?