The latest annual report from the Social Security Board of Trustees has revealed that the benefit program that supports millions of vulnerable Americans each month is indeed on a rapid path to insolvency if Congress does not intervene soon.
The issue in specific lies with one of the main sources of funding for the program which is the Old Age and Survivors Insurance trust fund. According to the trustees’ projection as per the report, the Old Age and Survivors Insurance trust fund will be depleted as soon as 2033 if no major changes are made to the program in the present.
If things remain as is and the trust fund is exhausted, beneficiaries will be faced with significant cuts to their benefit amounts. Here is what you need to know.
Projected shortfall of the Social Security trust funds
The Social Security program which provides tens of millions of Americans — such as retirees, survivors, and disabled individuals — with monthly benefits has two main sources of funding. The primary source of funding is a dedicated Social Security payroll tax (12.4% of a worker’s earnings are contributed towards this, half of which is covered by the employer generally).
The second source of funding are the Old Age and Survivors Insurance (OASI) trust fund and the Disability Insurance (DI) trust fund, and according to the trustees’ projections, the OASI trust fund will reach insolvency by 2033. At this point, the remaining revenue will only cover 77% of scheduled benefits. If the two trust funds were combined, 100% of benefits would only be covered until 2034. Following this, the remaining revenue would only be sufficient for 81% of all scheduled benefits.
It now appears that the passing of the One Big Beautiful Bill Act, which includes changes to policies regarding taxes on benefits, is worsening the situation and as a result, the projected insolvency date has once again shifted.
In a letter to Democratic Senator Ron Wyden, Chief Actuary Karen Glenn wrote the following: “Because the revenue from income taxation of Social Security benefits is directed to the Social Security and Medicare trust funds, implementation of the OBBBA will have material effects on the financial status of the Social Security trust funds.”
“Cumulative costs to the Social Security’s Old-Age and Survivors Insurance (OASI) and Disability Insurance (DI) trust funds (jointly called OASDI) would increase by roughly $168.6 billion over the coming decade due largely to lower income tax rates and new deduction rules, including a temporarily enhanced standard deduction for seniors,” the Office of the Chief Actuary stated with regards to the effects of the OBBBA.
How much will beneficiaries lose?
Committee for a Responsible Federal Budget (CRFB) conducted an analysis which revealed that if the program does reach insolvency, beneficiaries can expect a 24% cut to their benefits starting in late 2032. “By 2099, that cut could exceed well over 30 percent,” the CRFB further noted. It should be noted that the CRFB’s estimates are larger than that of the trustees’ report as it takes into consideration the impact of the tax deductions under the OBBBA (which had not yet been passed when the report had been published).
“If the expanded senior standard deduction and other temporary measures of OBBBA are made permanent, the benefit cut would grow larger,” CRFB added.
“Policymakers pledging not to touch Social Security are implicitly endorsing these deep benefit cuts for 62 million retirees in 2032 and beyond. It is time for policymakers to tell the truth about the program’s finances and to pursue trust fund solutions to head off insolvency and improve the program for current and future generations,” as per a July 24th report from CRFB.
No concrete decision has been made yet, however, there have been proposals to hike taxes, or increase the full retirement age again. The full retirement age will finally reach 67 as of next year.