Social Security’s reserves are being drained at a faster rate, and the benefits it pays out to sustain about 67 million Americans are now set to be depleted in 2034, one year earlier than previously projected.
An economic slowdown, persistently high and record-breaking inflation and weaker productivity growth are all contributing to the downturn in Social Security’s combined funds that pay retirement, disability and family benefits, according to the latest report by the program’s annual trustees. (Related: Just five of Chicago’s largest public pension systems owe more pension debt than the sum of 44 states.)
Come 2034, unless Congress takes immediate action to shore up the deficiencies of the Social Security system, benefits will have to be cut to account for lower revenues. This will result in eligible beneficiaries only receiving at most 80 percent of their scheduled benefits.
Social Security’s financial situation started to really take a turn for the worse in 2021, when the fund started paying more in benefits than it received through payroll taxes and interest on the specially issued Treasury securities it holds in reserve. This has reduced the size of Social Security’s trust fund to $2.8 trillion last year from $2.9 trillion in 2020.
Congress will have to raise taxes or cut benefits to keep Social Security solvent
The program’s annual trustees calculated the new depletion date by accounting for the economy’s recent output and inflation data. This suggests that gross domestic product and labor productivity will shrink by about three percent for the projected time period, which worsens the outlook for Social Security’s combined funds.
The Social Security program’s trustees made it clear that each fund has separate depletion dates.
The old age and survivors insurance trust fund, the larger of the two, which pays benefits to retired workers, as well as the spouses and children of deceased workers, will be able to pay full benefits until 2033. This is one year earlier than the trustees’ report last year.
The disability fund has a later projected insolvency date. It is expected to be able to pay full benefits through at least 2097.
The report of the program’s annual trustees laid out two possible solutions to keep the program solvent. One is to raise taxes. An immediate, across-the-board increase of 3.44 percent to 15.84 percent – split between employees and employers – would keep the program solvent for the next 75 years. Right now, employees and employers each contribute about 6.2 percent of payroll taxes to Social Security, for a combined 12.4 percent tax rate.
The other solution is an immediate cut to benefits. Slashing how much Americans receive from Social Security benefits by 21.3 percent would put the program on sounder footing.
Despite calling Social Security one of the “bedrock programs that older Americans rely upon for their retirement security,” Treasury Secretary Janet Yellen has refused to elaborate on any concrete plans the administration of President Joe Biden has on keeping the program fully funded.
“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,” said Yellen in a statement. Biden himself, without suggesting any proposals, called for protecting and strengthening the program.
Find the latest news involving Social Security, pensions and retirement funds at Pensions.news.
Watch this clip of Republican Sen. Bill Cassidy of Louisiana on Fox Business discussing President Joe Biden’s refusal to meet with a bipartisan group of senators to discuss their plan to clean up the Social Security system using market-oriented approaches that don’t involve raising taxes.
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