If Congress does not intervene soon, the Social Security program will continue down a path that will result in the program having the capacity to pay only 77% of scheduled benefits by the year 2034 which is less than a decade from now, according to the latest federal projections. This projection is becoming a growing cause for concern for many as it it predicts that the program will fall short a year earlier than what was projected in the previous year’s report.
The Social Security Administration (SSA) pays benefits to around seventy million Americans on a monthly basis, the vast majority of whom are quite reliant on these monthly checks to cover their living expenses such as housing or food. In addition to the potential depletion of the Social Security Trust Fund, the Medicare Trust Fund appears to also be headed down a similar path and will only be able to cover 100% of scheduled benefits up until 2033.
Here is what you need to know.
Social Security shortfall projections
According to the federal projections from June 18th, the trust fund from which retiree and survivor benefits are paid will only be able to sustain itself whilst making 100% of scheduled payments for the next 8 or so years which is 2033. According to the report from the previous year, the trust fund was projected to run out a year later in 2034. In a summary of their report for this year, the Social Security trustees noted stated, “As in prior years, we found that the Social Security and Medicare programs both continue to face significant financing issues.”
It is specifically the Old Age and Survivors Insurance (OASI) Trust Fund that has a projected shortfall. By 2033, “At that time, the fund’s reserves will become depleted and continuing program income will be sufficient to pay 77% of total scheduled benefits,” as per the report.
The Disability Insurance (DI) Trust Fund, according to the report, will be able to continue to pay 100% of scheduled benefits (such as the Supplement Security Income and disability benefits) up until 2099 which is the last year of the report’s projection. Additionally, if the two trust funds were combined as the OASDI, the combined funds would be able to cover 100% of scheduled benefits for the next 9 years, and will be depleted by 2034, according to the report.
What is causing the shortfall?
The factors driving this shortfall are threefold, with the first being the recent Social Security Fairness Act placing a significant burden on the trust fund because the law has resulted in increased benefits for around 3 million beneficiaries. The second reason is that “the Trustees extended the assumed period of recovery from historically low levels of fertility by 10 years.” Lastly, the Hospital Insurance (HI) Trust Fund is also worsening and its projected depletion date has been moved up 3 years to 2033.
“The new projections show the trust fund for Social Security is going to be depleted one year sooner than was projected last year, which means that Social Security recipients may see a 19% reduction in their Social Security income one year sooner,” Myechia Minter-Jordan, CEO of AARP, explained in a statement. “Congress must act to protect and strengthen the Social Security that Americans have earned and paid into throughout their working lives. More than 69 million Americans rely on Social Security today and as America’s population ages, the stability of this vital program only becomes more important.”
In a message to the public, the trustees of Social Security wrote, “Lawmakers have many options for changes that would reduce or eliminate the long-term financing shortfalls. 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.”