The latest report from the Social Security Board of Trustees has revealed that the Social Security program continues to face financial struggles, and if Congress does not intervene soon, the Old Age and Survivor Insurance (OASI) trust fund will be exhausted by 2033 and following this, the program would only be able to pay 77% of scheduled payments.
The driving forces behind this projected shortfall are multiple, with payments for the Social Security Fairness Act causing a fair amount of strain on the program’s already dwindling finances. Additionally, this change in benefit payments due to the Fairness Act has also caused personal income figures for the United States to decline.
Here is what you need to know.
Social Security Fairness Act and the projected trust fund short fall
The Social Security Fairness Act had been signed into law at the beginning of the year and as a result, some 3 million public sector employees had their full benefits restored to them. This cohort previously had their benefits reduced due to alternate pensions having been provided to them by their employers under the provisions of the Windfall Elimination Provision (WEP) or the Government Pension Offset (GPO).
“What really happened is that the Social Security Fairness Act eliminated two provisions. The Windfall Elimination Provision (WEP) & the Government Pension Offset (GPO). They previously reduced benefits for individuals who also receive income from public pensions,” Michael Ryan, finance expert and founder of MichaelRyanMoney.com, shared with Newsweek. “These retired teachers, firefighters, and government workers had been getting the short end of the stick for years. Having their Social Security benefits slashed just because they’d also earned a pension from their public service jobs.”
With the Social Security Fairness Act coming into effect, the impacted public sector employees will now receive a bump to their monthly benefit amounts, as well as a one-time retroactive payment dating back to January 2024. Whilst this change will likely be happily received by the impacted beneficiaries, these increased payments, along with the payments of the retroactive payments will no doubt have placed an additional strain on the funds of the Social Security program.
There are currently more than 70 million recipients of Social Security benefits, and as a result, even the the smallest of increases will add up to significant figures.
Personal Income in the U.S.
According to data recently released by the government, “personal income in the United States declined by 0.4 percent in May, marking the first monthly drop since 2021.” Prior to this, however, personal income in the United States rose by 0.8 percent in April. Lower wages were not to blame for this somewhat significant change, however, but rather the major jump in income the 3 million or so beneficiaries received due to the retroactive payments being made to them under the Social Security Fairness Act.
Ryan further said to Newsweek, “When May rolled around and those lump sums disappeared from the monthly calculations, it looked like everyone suddenly got poorer. It’s like if you got a big tax refund in April. Your income would spike that month, then ‘drop’ in May even though you’re not actually making less money.”
“Beneficiaries affected by the Social Security Fairness Act were issued retroactive checks by the SSA for their new monthly amounts, some for as many as 16 months back to January 2024,” Martha Shedden, president and co-founder of the National Association of Registered Social Security Analysts, also shared with Newsweek. “Those individuals are now receiving higher monthly benefit checks that will not change going forward except for the annual COLAs each January.”
The implementation of the Social Security Fairness Act has also been cited as a contributing factor towards to accelerated depletion of the OASI trust fund. In the annual report, the board of trustees explained that, “the repeal of these provisions (WEP and GPO) increased projected Social Security benefit levels for some workers, relative to projected benefit levels in last year’s report. The impact of this legislation on the OASI Trust Fund was the primary contributor to the change in the combined OASDI fund depletion date this year.”