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Learning from Spain’s Social Security Example

Friday July 29th, 2016   •   Posted by Craig Eyermann at 10:31am PDT   •  

SocialSecurity What should Americans expect to happen when Social Security’s Old Age and Survivors Insurance (OASI) trust fund runs out of money in 2034?

For many Americans, including those who are just starting to collect Social Security retirement benefits, that may seem like a long time away.

But if current projections hold, well before 2034 nearly all Americans living today will get to see what life in retirement will be like when insolvency happens. That’s because Spain’s Social Security program will become insolvent less than two years from now. Mike Shedlock translates the dour news from Spain’s El Confidencial newspaper:

The Social Security reserve fund will run out of money in 2018. The cause is bonus payments to pensioners, which consumes every six months (in December and July) over 8.5 billion euros. Revenue from social security contributions are not sufficient to meet the payment obligations.

Starting in 2018, only an extraordinary contribution by the State would make it possible for Social Security can meet its commitments.

The financial problems of Social Security are not a temporary problem. The government itself expects that this year the public pension system will register equivalent to 1.1 percent of GDP deficit (about 11 billion euros), while in 2017 planned is an imbalance equivalent to 0.9% of GDP.

In 2016, revenues from social security contributions recorded an accumulated a deficit of 12.24% compared to expectations. The deviation is even higher than the already recorded in 2015.

Right now, the 2016 Social Security’s Trustees Report on the state of the U.S. Social Security program’s finances is currently projecting that the U.S. OASI trust fund will be fully depleted in 18 years time, in 2034. When that occurs the amount of benefits projected to be paid to all Social Security recipients will automatically be cut by 21% across the board.

Unless Spain receives a massive bailout to forestall insolvency, the beneficiaries of its government’s Social Security program can expect to live through a similar scenario, but 16 years earlier. How that issue plays out in Spain then will be an early indication of how U.S. elected officials will act to cope with the same problem when it becomes a fact of life in the U.S. in 2034 and after. The political choices that will shape the future for America’s retirees are being made in Spain today.

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July 2016