01.15.13 5:42 PM ET
The Newest Retirees Will Outlive The Social Security Trust Fund
Newly eligible 62 years olds are expected to live to 84 on average, or one year longer than the Social Security trust fund. This is first time since the 1983 reform that full benefits won’t be payable through life expectancy for Social Security’s youngest retirees. Very suddenly, implied Social Security cuts are actually written into the terms of current Social Security law.
The hastening of the Social Security Trust Fund's demise to 2033 means that workers just becoming eligible for Social Security at age 62 face steep future benefit cuts if they live to the average life expectancy, now about 84.
Those abrupt benefit cuts of about 25% a year for today's 62 year olds and workers nearing the early retirement age would come at an especially bad time — late in life when savings have dwindled and health care bills are on the rise.
Avoiding this scenario is a key reason to reform Social Security, even apart from the program's impact on rising debt levels.
But this turning point also is significant for symbolic reasons. Up until now, the very existence of the $2.7 trillion trust fund — $1.1 trillion in net cash surpluses since 1983 and $1.6 trillion in accrued interest — has made Social Security seemingly untouchable. …
Yet the argument that benefit cuts would break a near-sacred contract is no longer valid now that full benefits are no longer prepaid. Benefit cuts are built into current law and, in effect, written into the contract with workers.
Under current law, a worker who just turned 62 would face a 25% benefit cut once the trust is spent in early 2033. If that worker claims benefits at 62 and lives to the average expectancy of 84, she would face the equivalent of a 1% cut in lifetime retirement benefits.