The Social Security program recently celebrated its ninetieth anniversary, and while this is a major milestone, the program may hit a significant funding bump on the road to its one hundredth anniversary. The program has three main sources of funding through which benefits are paid each month; however, the most recent annual report from the Social Security Board of Trustees has revealed that a major trust fund will soon be depleted if Congress fails to intervene.
The somewhat good news is that the Social Security program would not shut down or become completely bankrupt if this trust fund becomes insolvent; however, if the shortfall comes to pass as projected in the report, millions of beneficiaries would likely face a substantial cut to their monthly benefit checks. Here is what you need to know about the projected shortfall facing the Social Security program.
Social Security trustees’ report
A summary of the annual report from the Board of Trustees begins by noting that both the Social Security and Medicare programs have faced significant financing issues for several years now. With regard to the Social Security program, it is the Old-Age and Survivors Insurance (OASI) trust fund that is projected to be depleted as soon as 2033 if no changes are made to the program now. At that point, only 77% of scheduled benefits would be payable from the program’s remaining revenue.
The Disability Insurance (DI) trust fund, on the other hand, is projected to remain solvent until 2099. The report also considers the hypothetical of combining the two trust funds into one OASDI trust fund. If the funds are combined, the trust fund is projected to remain solvent only until 2034; thereafter, the remaining revenue would cover just 81% of scheduled benefits going forward.
In the annual report from the previous year, the combined trust fund was estimated to reach a shortfall in 2035, meaning the program’s finances are indeed worsening.
The trustees cited three main reasons for the deterioration in the program’s outlook: “First, the Social Security Fairness Act, as enacted on January 5, 2025, repealed the Windfall Elimination and Government Pension Offset provisions of the Social Security Act.
The repeal of these provisions 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. Second, the Trustees extended the assumed period of recovery from historically low levels of fertility by 10 years. The long-term fertility rate is reached in 2050, compared to 2040 as assumed in last year’s report. Third, the Trustees lowered the assumed long-term share of Gross Domestic Product (GDP) that accrues to workers in the form of labor compensation.”
Proposed solutions
Lawmakers have been putting forward possible solutions to prevent this projected shortfall; however, nothing has been decided for certain yet. A bipartisan effort from two senators proposed the creation of a new investment fund that could generate higher returns to help finance the program. This investment fund would, however, require a $1.5 trillion startup contribution from the Treasury to be invested over a 75-year period.
There has also been talk of increasing the Full Retirement Age further. In 2026, the Full Retirement Age is set to increase one last time to 67 for those born in 1960 and later. Other proposals include lifting the wage cap or raising the Social Security payroll tax rate, which currently stands at 12.4% of a worker’s earnings and is split 50/50 between employer and employee.