Reserves for Social Security’s largest trust fund are on track to run out as soon as 2033, a board of trustees of the program’s accounts said in a report on Friday.
The estimate is one year sooner than previously projected for the Old-Age and Survivors Insurance (OASI) Trust Fund, which pays out Social Security benefits to retirees, in the trustees’ report from last year. If the reserves are depleted, the report projected income for the account would only cover 77 percent of scheduled benefits.
By contrast, the board estimated the program’s smaller Disability Insurance (DI) Trust Fund would not become depleted for at least 75 years.
While both funds are separate, the accounts have usually been considered as a combined fund when discussing the program’s solvency. Lawmakers have also allowed inter-fund borrowing between accounts to temporarily extend solvency in the past.
The retirement and disability trust funds together could cover 100 percent of total scheduled benefits until 2034, according to the report, one year sooner than the board previously reported.
If both funds are depleted before Congress can act to replenish them, the government would only be able to cover 80 percent of scheduled benefits to retirees and disabled beneficiaries.
The board said it updated its projections after taking into account new inflation and output data, adding it also “revised down the levels of gross domestic product (GDP) and labor productivity by about 3 percent over the projection period.”
Roughly 66 million people received Social Security benefits in 2022. A vast majority, or about 57 million of those people, received benefits through the OASI Trust Fund, compared to nearly 9 million people who received benefits through the DI Trust Fund.
The report found the number of beneficiaries for the OASI Trust Fund rose by 2 percent last year, while the DI Trust Fund saw a 4.1 percent drop in people receiving benefits through the program during the same period.
The report credited the changes largely to “the shifting age distribution of the adult population,” noting the baby-boom generation moved “increasingly above age 62 for retired worker benefits, and above normal age, where DI benefits are no longer applicable.”
The total projected cost of the program started exceeding its total income in 2021, the board said, and that trend is expected to continue this year and in subsequent years.
At the same time, the trustees for the Medicare accounts moved their insolvency projection for the Hospital Insurance (HI) Trust Fund back some, finding the fund would be able to “cover 100 percent of total scheduled benefits until 2031.” The estimate is three years later than previously projected.
If the fund’s reserves become depleted, the board estimated there could be a reduction of about 11 percent in total scheduled benefits through the program’s continuing income without policy changes.
President Biden included a plan to extend the lifetime of Medicare’s HI fund into the 2050s as part of his budget rollout earlier this month. The plan included proposals to lower costs for beneficiaries and impose a higher tax rate “on earned and unearned income above $400,000.”
There have also been some bipartisan discussions in the Senate aimed at exploring potential fixes to shore up solvency for Social Security. But reforms to entitlement programs are often seen as a heavy lift in Congress.
“The Trustees continue to recommend that Congress address the projected trust fund shortfalls in a timely fashion to phase in necessary changes gradually,” Kilolo Kijakazi, acting commissioner of Social Security, said in a statement.
“Social Security will continue to play a critical role in the lives of 67 million beneficiaries and 180 million workers and their families during 2023,” Kijakazi added. “With informed discussion, creative thinking, and timely legislative action, Social Security can continue to protect future generations.”
The trustees urged lawmakers to address the projected shortfalls in a “timely way in order to phase in necessary changes gradually and give workers and beneficiaries time to adjust to them.”
“Implementing changes sooner rather than later would allow more generations to share in the needed revenue increases or reductions in scheduled benefits,” they said in conclusion.