Given its established trend, we anticipate that Social Security's Disability Insurance Trust Fund will be fully depleted in or shortly after October 2016. When that happens, Social Security's Trustees have indicated that the payments to individuals receiving its Disability Insurance benefits will be reduced by nearly one-fifth.

As recently as 2008, Social Security's Trustees believed that its Disability Insurance (DI) Trust Fund would have enough money to last until 2025. Even in 2009, on the eve of the official end of the so-called "Great Recession", the Trustees indicated that the DI Trust Fund would last into 2020.

So what happened? Why is Social Security's disability trust fund running out of money so much more quickly than Social Security's actuaries ever expected?

The primary reason why Social Security's DI Trust Fund is now on track to be fully depleted so many years earlier than had been expected has a lot to do with the surge of Americans who lost their jobs during the Great Recession, who then went on to fully exhaust the unemployment insurance benefits that had been made available to them as the U.S. economy failed to meaningfully recover under President Obama's economic policies. Without the prospect of finding jobs as their unemployment benefits ran out, many applied for welfare disability benefits to replace the money they had been getting through unemployment.

And because being classified as disabled would remove such individuals from being counted as both unemployed and part of the U.S. civilian labor force, the Obama administration had a strong incentive to get the program's administrators to look the other way at the disability insurance applications for benefits that were being made as jobless benefits were expiring, as the resulting math would considerably reduce the official unemployment rates reported by the U.S. Bureau of Labor Statistics.

To show how that played out, we've tapped Social Security's data on the number of Disability Insurance beneficiaries by age at the end of each year from 2005 through 2014, which would allow us to do some accounting for the age demographics of the U.S. population, where we'll focus on the members of the Baby Boom Generation - Americans born in the years from 1946 through 1964. Our first chart shows the number of Social Security's Disability Insurance beneficiaries by age for each of these years.

In our next chart, we calculated the net change from one year to the next for each of the birth year cohorts covered by the data, where we would take the number of 31-year old disability benefit recipients in 2009 and subtract the number of 30-year old disability benefit recipients in 2008 from it.

The key bit of information to take away from this chart is that regardless of year, individuals seeking Social Security disability insurance benefits Age 50 and over are predominantly the ones who are awarded it. This is directly due to how the program is managed, where the Social Security Administration is much more aggressive in challenging the disability claims of individuals under Age 50 than it is for individuals who are Age 50 or older.

We next set 2006 as our baseline reference year for measuring differences over time, as that year would provide a good representation of the rate at which disability insurance beneficiaries would typically be added during a relatively healthy economic period of time, as the nation's economy grew at a real rate of 2.7% as over 3.2 million jobs were added over the previous year.

Having set our baseline, we next calculated the "surplus" of disability beneficiaries by age with respect to the net change that was recorded in 2006. The results of our math are presented in our third chart, which because that's a lot of data to digest, we've opted to animate:

Let's go year by year, beginning with 2007:

• 2007: Very little change from 2006, except for Ages 60 and 61, which is mainly notable because these are the ages at which Americans born at the leading edge of the Baby Boom, 1946 and 1947, would turn those ages. Other than that observation however, there is no real difference from the data recorded in 2006, which should be expected because the economy grew throughout the year, peaking in December 2007.
• 2008: The first year of the "Great Recession", which took hold after December 2007, saw a net increase in the number of individuals across the board, regardless of age, with the largest increases occurring above Age 43. Coincidentally, the youngest Baby Boomers would be at least Age 44 in 2008.
• 2009: This year saw the largest job losses during the Great Recession, which continued after the U.S. economy officially began "growing" again in June 2009. Note that the net change in the number of individuals now receiving disability benefits grew uniformly for those between the ages of 21 and 43, which is something that could only happen if the welfare program's administrators were purposefully looking the other way, as there were no Baby Boomers younger than Age 45 in 2009.
• 2010: The number of "surplus" individuals receiving disability benefits continued to grow in 2010, once again, across the entire spectrum of ages. 2010 coincides with the beginning of when those who lost their jobs in 2008 would begin having their extended emergency unemployment insurance run out after 99 weeks. Once again, the near uniformity of the surplus disability insurance beneficiaries for the younger age ranges suggest that the program's administrators had an allowance for adding people to the nation's disability rolls.
• 2011: The first declines in the number of "surplus" individuals receiving disability benefits begin for those under Age 55, while continuing to rise for those over Age 55. This year would coincide with the expiration of 99 weeks of unemployment benefits for workers laid off as part of the implosion of the U.S. automotive industry in late 2008, early 2009.
• 2012: For individuals Age 47 and under, the number of "surplus" disability benefit recipients fall back to the level they had been in 2006. Meanwhile, the number of "surplus" disability recipients also begins to fall for individuals Age 48 and older, which corresponds, once again, to the age of the youngest Baby Boomers. The numbers remain highly elevated, which indicates that the period of economic distress following the "Great Recession" was continuing.
• 2013: The number of "surplus" individuals joining the ranks of those collecting Social Security disability insurance benefits continued to fall as the U.S. economy improved - so much so that we actually see the number of "surplus" new individuals between Age 34 and 49 falls below the numbers than had been recorded in 2006. The end of 2013 also saw the end of the federal government's "emergency" extended unemployment benefits.
• 2014: The number of "surplus" disability beneficiaries continues to fall across the board as the pace of new job creation picked up considerably in 2014, but now, the numbers are such that there are considerably fewer individuals being added to the ranks of the disabled in the age range from 21 through 54 than were in 2006. That's remarkable in that the youngest baby boomers turned Age 50 in 2014 - if the number of people going onto disability was demographically driven, given the program's guidelines, we shouldn't see any of the number of new beneficiaries Age 50 or older drop below their 2006 levels.

What these numbers tell us is that the state of the economy is the determining factor behind the pace at which individuals have been added to the ranks of those collecting DI benefits, rather than say, the incidence of disabilities in the U.S. population. Also, we see that while the age demographic data explains why we observe higher numbers of people above a given age threshold being added to the disability rolls, that they're being added is primarily driven by the nation's employment situation.

What that observation confirms is that Social Security's disability insurance program was operated as somthing of a dumping ground for the nation's long term unemployed after they exhausted their very generous extended unemployment benefits following the end of the Great Recession. Particularly if they were above the key Age 50 threshold that determines the level of challenge their disability claims would face, but surprisingly for a very large percentage of younger Americans.

In fact, if we total up the number of all the "surplus" number of Social Security disability insurance beneficiaries from 2007 through 2013 for those Age 21 through 64, we find that 913,207 more Americans were put onto the nation's disability rolls above and beyond what would have been considered to be typical numbers in 2006, which would account for why the Social Security trust fund has been depleted so much faster than expected. It is only in 2014 that we find fewer Americans being added on net than what we would have been typical in 2006, but that would also coincide with the best year for jobs recorded since the Great Recession began, proving our point that the nation's employment situation is the main determinant of the rate at which Social Security awards disability benefits.

Before we conclude, we have one last observation. If we go back to our first chart and look at the overall changes in the number of Social Security disability benefit recipients over time, we confirm that except for the oldest Baby Boomers who were collecting disability benefits, who have since aged out of the program and are now receiving Social Security pension benefits instead, the vast majority of those who were added to Social Security's disability rolls during the period from 2008 through 2013 are still on them.

In 2012, the Obama administration indicated that this situation is unlikely to ever change under current rules. In March 2014, Social Security proposed tightening some of their rules for awarding disability benefits, in apparent response to a 2011 Wall Street Journal article, but doesn't appear to have implemented the proposed changes that year.

Notes

[1] Our projections are consistent with the Social Security Trustees' Intermediate Assumptions, where they anticipate the Disability Insurance (DI) Trust Fund becoming depleted in the fourth quarter of 2016. In their 2014 Annual Report, they project that the program only has enough revenue to support benefits at 81% of their current level without any additional funds being available to be tapped from the DI trust fund, which is documented in Table IV.B3 of the report. In the absence of Congressional action, all recipients of Social Security's Disability Insurance benefits would therefore have their monthly payments slashed by 19% after the DI Trust fund is depleted.

Data Sources

U.S. Social Security Administration. Benefits Paid by Type of Beneficiary. Disabled Worker. Monthly. All Years. [Online Database]. Accessed 20 May 2015.

U.S. Social Security Administration. Disabled worker beneficiaries in current payment status at the end of December, distributed by age and sex. [Online Database: 2005, 2006, 2007, 2008, 2009, 2010, 2011, 2012, 2013, 2014]. Accessed 20 May 2015.