It Doesn’t Work

Buried in the Social Security report is a train-wreck the next President will face.

When Social Security issued its annual report this week, most people focused on the retirement fund’s solvency. It reports that it will run out of money by 2033. Actually, that projection is optimistic, but that’s another story.

But there’s another part of Social Security facing more immediate challenges: the disability fund. This program offers essential support for people who have no chance of holding another job. Currently, 16 million adults and family members receive $162 billion worth of disability payments each year.

It’s grown dramatically recent years in spite of a healthier population and a safer workplace. Originally it was hard to qualify, but congressional mandates now allow hard-to-disprove factors like anxiety or back pain to let people in. Once people start receiving payments, they almost never reenter the workforce. The report now estimates that it will be depleted by 2016. Something needs to be done.

The good news is that the fund’s insolvency isn’t that complicated. Congressional mandates created this mess, and they can fix it. Changing the rules may seem cruel or heartless, but there are common-sense reforms that could help: incentives to return to the workforce, risk-scoring employers, requiring medical certifications. These would help the fund and help the general economy.

But an easy fix would be to simply allow the disability fund to borrow from the general SSI fund, weakening that fund and accelerating its decline. Hmmm: fundamental reform, or a fiscal reshuffling—which do you think Congress will chose?

Douglas R. Tengdin, CFA
Chief Investment Officer
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By | 2014-09-09T16:25:45+00:00 April 26th, 2012|Global Market Update|0 Comments

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