Social Security trust fund could face shortfall within a decade — and earlier than expected, officials say
The trust funds paying for Social Security and Medicare are facing financial challenges, the trustees of the funds said in their annual reports, released Friday. Republican lawmakers and the White House have been in a war of words over the budget and the future of entitlement programs.
"Social Security and Medicare are two bedrock programs that older American rely upon for their retirement security," said Treasury Secretary Janet Yellen following a meeting of the Boards of Trustees of the Social Security and Medicare trust funds Friday. "The Biden-Harris Administration is committed to ensuring the long-term viability of these critical programs so that retirees can receive the hard-earned benefits they're owed."
The Old Age and Survivors Insurance Trust Fund, one of the funds that pay for Social Security, will be able to make full payments until 2033. That's one year sooner than last year's report projected. The fund would then become depleted and benefits moving forward would have to be cut by 23% — paying 77% of current total benefits. In contrast, the Disability Insurance Trust Fund, which also pays for Social Security, is projected to be able to pay 100% of all scheduled benefits until at least 2097.
Together, the trust funds would be able to pay 100% of total Social Security benefits until 2034, a year earlier than projected in last year's report. Then, the funds would be able to cover 80% of scheduled benefits.
The projected long-term finances of the trust funds are both worse than last year, as the trustees reassess their expectations for the economy.
Retiring baby boomers are pushing up the number of Social Security beneficiaries much faster than the number of covered workers who are replacing boomers at work, which means Congress will need to modify scheduled benefit levels or payroll tax levels by 2033, officials said.
"Social Security is not in crisis. The newly released Social Security Trustees Report shows that the program's financial position remains largely unchanged," said Laura Haltzel, a senior fellow at the Century Foundation, a progressive think tank. Policymakers, she said, "have a decade to consider and enact policies that would fill the gap between promised benefits and those payable with tax revenues."
The cap on the maximum taxable income for Social Security is affecting revenues, officials said. When the law capping that amount at $160,200 was passed in 1983, the expectation was that 90% of income would be below that and subject to tax. But since then, the highest income earners — roughly the top 1-6% — have had income increase substantially. Now, only 82% of all covered earnings income is taxed, which has led to a substantial reduction in the amount of revenue coming into the trust.
While retirees receiving Social Security received an 8.7% cost of living adjustment this year because of inflation, administration officials said average wages increased 8.9%, which helped boosted revenues for that trust fund.
For Medicare, however, the new report shows the trust fund that pays for Part A will be able to pay 100% of scheduled benefits for three years more than last year's report, until 2031. At that point, the fund, which covers care such as hospital stays and hospice, would become depleted and be able to pay 89% of total benefits. That timeline is due to lower projected health spending.
The deficit in the trust fund that pays for Medicare Part A could be fixed with an immediate reduction of spending by 13% or by increasing the standard payroll tax rate of 2.9% to the amount of the deficit: 3.52%, administration officials said. Other more gradual corrections could also be taken.
And the trust fund that pays for Medicare Part B is adequately financed into the indefinite future. While the costs are steadily rising to meet demand, unlike other trust funds, it's financed through premiums and federal contributions that are automatically adjusted. And expenditures for Medicare Part B as a share of GDP are also projected to be lower than previously estimated, partially due to lower health spending. Expenditures for drugs from that fund are projected to be a much lower share of GDP because of the Inflation Reduction Act passed by Democrats last year.
Roughly 65 million Americans receive Medicare benefits, including some 57 million ages 65 and older and 7.9 million people with disabilities. About 66 million Americans receive Social Security.