Americans’ Social Security checks will get a lot smaller in 2034 if lawmakers don’t act to address the pending shortfall, according to an annual report released Friday by the Social Security trustees.
That’s because the combined Social Security trust funds – which help support payouts for the elderly, survivors and disabled – are projected to run dry that year. At that time, the funds’ reserves will be depleted, and the program’s continuing income will only cover 80% of benefits owed.
The estimate is one year earlier than the trustees projected last year. About 66 million Americans received Social Security benefits in 2022.
Medicare, meanwhile, is in a more critical financial condition. Its hospital insurance trust fund, known as Medicare Part A, will only be able to pay scheduled benefits in full until 2031, according to its trustees’ annual report, which was also released Friday.
At that time, Medicare, which covered 65 million senior citizens and people with disabilities in 2022, will only be able to cover 89% of total scheduled benefits. Last year, Medicare’s trustees projected that the hospital trust fund’s reserves would be depleted in 2028.
Long-standing fiscal troubles
Immensely popular but long troubled, Social Security and Medicare are on shaky financial ground in large part because of the aging of the American population. Fewer workers are paying into the program and supporting the ballooning number of beneficiaries, who are also living longer. Also, health care is becoming increasingly expensive.
Social Security has two trust funds – one for retirees and survivors and another for Americans with disabilities.
Looking at them separately, the Old-Age and Survivors Insurance Trust Fund is projected to run dry in 2033, at which time Social Security could pay only 77% of benefits, primarily using income from payroll taxes. The date is one year earlier than estimated last year.
The Disability Insurance Trust Fund is expected to be able to pay full benefits through at least 2097, the last year of the trustees’ projection period.
Merging the two trust funds would require Congress to act, but the combined projection is often used to show the overall status of the entitlement.
Social Security’s projected long-term health worsened over the past year because the trustees revised downward their expectations for the economy and labor productivity, taking into account updated data on inflation and economic output.
However, the long-term projection for Medicare’s hospital trust fund’s finances improved, mainly due to lowered estimates for health care spending after the height of the Covid-19 pandemic. Also, the program is projected to take in more income because the trustees estimate the number of covered workers and average wages will be higher.
Regardless, the bottom line remains that Medicare is not bringing in enough money to pay the costs it is expected to incur, said Cori Uccello, senior health fellow at the American Academy of Actuaries.
“It’s still not a time to become complacent,” she said. Insolvency “is still less than a decade away.”
Added pressure on Congress
The trustees’ reports are the latest warnings to Congress that they will have to deal with the massive entitlement programs’ fiscal problems at some point soon. But addressing their issues is politically challenging. Elected officials are hesitant to suggest any changes that could lead to benefit cuts, even though that could reduce their options in the future.
“With each year that lawmakers do not act, the public has less time to prepare for the changes,” the trustees warned in a fact sheet.
The programs’ shortfalls are back in the spotlight this year as President Joe Biden and House Republicans battle over how to address the nation’s debt ceiling drama and mounting budget deficits. GOP lawmakers want to cut spending in exchange for resolving the borrowing limit, while the White House has said it will not negotiate.
In a memorable moment in his State of the Union address in February, Biden garnered public acknowledgment from congressional Republicans about keeping Social Security and Medicare out of the debt discussions.
But “not touching” Social Security means a hefty cut in benefits within a decade or so.
“Change is inevitable because without changes to current law, both Social Security and Medicare Hospital Insurance would go insolvent, subjecting program participants to sudden and severe payment cuts,” said Charles Blahous, senior research strategist at the Mercatus Center at George Mason University and former Social Security and Medicare trustee. “The outstanding question is whether change will be tolerably gradual, or instead highly damaging because it is too long delayed.”
Though Biden has repeatedly vowed to protect Social Security, his latest budget proposal did not include a plan to stabilize its finances.
However, his proposal did call for extending Medicare’s solvency by 25 years or more by raising taxes on those earning more than $400,000 a year and by allowing the program to negotiate prices for even more drugs.
Spending on the entitlement programs is also projected to soar and exert increased pressure on the federal budget in coming years.
Mandatory spending – driven by Social Security and Medicare – and interest costs are expected to outpace the growth of revenue and the economy, according to a Congressional Budget Office outlook released in mid-February.
This story has been updated with additional information.