Social Security won’t be able to pay full benefits by 2034, one year earlier than projected last year, unless Congress acts to address the program’s finances, according the annual report released last week by the Social Security and Medicare trustees. The report finds that, in 13 years, the combined Social Security trust funds for retirement and disability will only be able to pay out 78% of benefits. The Old-Age and Survivors Insurance (OASI) Trust Fund, which pays retirement and survivors benefits, is expected to be depleted by 2033, also a year earlier than reported last year.
The Medicare Part A Trust Fund, which pays inpatient hospital benefits, will be depleted by 2026, the same as last year, according to the report. At that point, the program would be able to pay 91% of benefits.
The quicker Social Security depletion reflects the coronavirus recession and the resulting drop in payroll tax income and taxation of benefits. The report also projects higher mortality related to Covid-19 through 2023 and short-term delays in births and immigration.
“Lawmakers have many policy options that would reduce or eliminate the long-term financing shortfalls in Social Security and Medicare,” the trustees conclude in a summary of the report. “Lawmakers should address these financial challenges as soon as possible. Taking action sooner rather than later will permit consideration of a broader range of solutions and provide more time to phase in changes so that the public has adequate time to prepare.”
The report says that Social Security could be made solvent for 75 years via a 3.36 percentage point (or 27%) increase in payroll taxes today, but if lawmakers wait until 2034, a 4.2 percentage point increase (or 34%) would be needed. Similarly, a 21% cut in benefits today would make the program solvent over the long-term, but a 26% cut would be needed if lawmakers wait until 2034. (Some combination of tax increases and benefit cuts could also work, but again, the changes would need to be larger if they are delayed.)
About 65 million people were receiving Social Security benefits as of the end of 2020, and nearly 63 million were covered by Medicare.