Social Security won’t be able to pay full benefits in 2034 if Congress doesn’t act
Americans’ Social Security checks will get much smaller in 2034 if lawmakers don’t act to close the pending shortfall, according to an annual report released Friday by Social Security administrators.
Indeed, Social Security’s Combined Trust Funds — which help support payments for the elderly, survivors and the disabled — are expected to run out that year. At that time, the reserves of the funds will be exhausted and the program’s continued income will only cover 80% of the benefits due.
The estimate is a year earlier than the directors projected last year. About 66 million Americans received Social Security benefits in 2022.
Medicare, meanwhile, is in a more critical financial situation. Its hospital insurance trust fund, known as Medicare Part A, will only be able to pay the full benefits until 2031, according to its trustees’ annual report, also released on Friday.
At that time, Medicare, which covered 65 million seniors and people with disabilities in 2022, will only be able to cover 89% of total planned benefits. Last year, Medicare administrators projected that the hospitals’ trust fund reserves would run out in 2028.
Hugely popular but long struggling, Social Security and Medicare are on shaky financial footing largely because of America’s aging population. Fewer workers are contributing to the program and supporting the growing number of beneficiaries, who are also living longer. In addition, health care is becoming more and more expensive.
Social Security has two trust funds — one for retirees and survivors and another for disabled Americans.
Looking at them separately, the Old Age and Survivors Insurance Trust Fund is projected to run out in 2033, by which time Social Security could only pay 77% of benefits, mostly using payroll tax revenues. The date is a year earlier than expected last year.
The Disability Insurance Trust Fund should be able to pay full benefits until at least 2097, the last year of the Trustees’ projection period.
Merging the two trust funds would force Congress to act, but the combined projection is often used to show the overall status of the law.
The expected long-term health of Social Security has deteriorated over the past year as trustees downgraded their expectations for the economy and labor productivity, taking into account updated data on the inflation and economic output.
However, the long-term projection of Medicare hospital trust fund finances has improved, primarily due to lower estimates of healthcare spending after the peak of the Covid-19 pandemic. In addition, the program is expected to generate more revenue as administrators estimate that the number of workers covered and average wages will be higher.
Either way, the bottom line is that Medicare isn’t providing enough money to pay for the costs it would have to incur, said Cori Uccello, senior health researcher at the American Academy of Actuaries.
“It’s still not the time to get complacent,” she said. Insolvency “is still less than a decade away”.
The trustees’ reports are the latest warnings to Congress that they will soon have to deal with the fiscal problems of the massive rights programs. But solving their problems is politically difficult. The elect are are reluctant to suggest changes that could lead to benefit reductions, even if it may reduce their options in the future.
“With each year lawmakers fail to act, the public has less time to prepare for change,” the administrators warned in a fact sheet.
Program shortcomings are back in the spotlight this year as President Joe Biden and House Republicans battle over how to deal with the nation’s debt ceiling drama and growing budget deficits. GOP lawmakers want to cut spending in exchange for solving the borrowing limit, while the White House has said it won’t negotiate.
In a memorable moment during his State of the Union address in February, Biden won public recognition from congressional Republicans for keeping Social Security and Medicare out of debt discussions.
But “not touching” social security means a sharp reduction in benefits over the next ten years.
“Change is inevitable because without changes to current law, Social Security and Hospital Medicare would become insolvent, subjecting program participants to sudden and severe payment reductions,” said Charles Blahous, senior research strategist. at the Mercatus Center at George Mason University and former Social Security and Medicare Administrator. “The outstanding question is whether the change will be gradual enough, or rather very damaging because it is delayed for too long.”
Although Biden has repeatedly promised to protect Social Security, his latest budget proposal did not include a plan to stabilize his finances.
However, his proposal called for extending Medicare’s solvency for 25 years or more by raising taxes on those earning more than $400,000 a year and allowing the program to negotiate prices for even more drugs.
Spending on benefit programs is also expected to soar and put increased pressure on the federal budget in coming years.
Mandatory spending — driven by Social Security and Medicare — and interest charges are expected to outpace income and economic growth, according to the Congressional Budget Office outlook released in mid-February.
This story has been updated with additional information.