The combined Social Security trust funds are expected to be depleted by 2034, one year earlier than projected a year ago, according to a new report from the program’s trustees. At that time, the funds would be able to cover just 81% of obligations.
Social Security’s two trust funds, the Old-Age and Survivors Insurance Trust Fund that helps cover the cost of Social Security retirement benefits and the Disability Insurance Trust Fund, are separate and combining them would require a change in the law. But the combination is often used as a basis for measuring the health of the program.
Separately, the Old-Age and Survivors Insurance Trust Fund is projected to be depleted in 2033, the same as last year, according to the trustees’ report. Incoming revenues from payroll taxes would cover only 77% of obligations in 2033, forcing automatic benefit cuts of 23% unless Congress acts to shore up the program.
The trustees said the separate Disability Insurance Trust Fund will last until 2099, a year longer than previously expected.
Medicare projections moved up: The trustees’ report moves up the depletion date for the Hospital Insurance Trust Fund, known as Medicare Part A. That fund is now projected to be depleted in 2033, three years earlier than previously estimated. At that time, the program will be able to cover 89% of scheduled benefits.
Medicare’s Supplementary Medical Insurance Trust Fund does not face the same problem, though, since its primary funding sources — premium payments and federal contributions — are adjusted annually. At the same time, the trustees noted that “rapidly rising SMI costs have been placing steadily increasing demands on beneficiaries and general taxpayers.”
What’s driving the change in the outlook: The faster-than-previously-expected drawdown on the combined Social Security funds was driven largely by a change in the rules expanding eligibility for railroad workers and public pension beneficiaries that took effect this year under the Social Security Fairness Act, signed into law in early January by President Joe Biden. Adjustments to the assumptions about fertility rates and a downward revision in the estimated labor share of economic output also contributed to the revision, the trustees said.
The decline in the outlook for the Medicare hospital fund was driven by higher-than-expected costs in the near term. These higher costs raised the baseline and the cost estimates for all future years.
The bottom line: “Lawmakers have many options for changes that would reduce or eliminate the long-term financing shortfalls,” the trustees wrote. “Taking action sooner rather than later will allow consideration of a broader range of solutions and provide more time to phase in changes so that the public has adequate time to prepare.”