Party's nearly over

28 September 2009 By Martin Hutchinson

Social security may run a cash deficit in 2010 and 2011. That wasn’t supposed to happen until seven years later. Early retirement by babyboomers would reduce the longterm burden on the social security trust fund. But the short term cash outflows would worsen budget shortfalls.

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The US social security system is expected to pay out more in benefits in 2010 and 2011 than it receives in contributions, according to the Associated Press citing social security officials the first time that has happened since the 1980s. The excesses of payments over receipts are estimated at $10bn in 2010 and $9bn in 2011. Applications for retirement benefits are 23% above last year, while disability claims have risen by 20%.

Based on current social security rules and US actuarial tables, the actuarial value of social security payments to someone who stops working at age 62 is 14.6% higher if he or she delays drawing social security payments until the normal retirement age of 66 rather than drawing them immediately. With drawing delayed until the latest retirement age of 70, the present value of benefits is 28.2% higher than for drawing at age 62. These calculations discount payments at today's 30year Treasury rate of 4.06% and take account of the possibility of the worker dying before drawing benefits.

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