A trust fund for Social Security is scheduled to run out of money by 2034 as benefits exceed tax revenues, according to new estimates from the nonpartisan Congressional Budget Office (CBO).
The budget watchdog released the latest report assessing the financial state of the retirement program over the next 75 years.
Officials forecast that the Old-Age and Survivors Insurance Trust Fund’s balance will run dry in fiscal year 2033, one year later than last year’s projection. In addition, the balance of the Disability Insurance Trust Fund could be exhausted by 2064.
The trend in Social Security’s finances is occurring because the trust fund is being drained as it pays out more than it takes in from payroll tax revenue.
Over the next seven decades, Social Security’s actuarial deficit—the gap between the income rate of the scheme’s trust fund and Social Security obligations—will represent 1.5 percent of the GDP, or more than 4 percent of taxable payroll.
CBO research indicates that scheduled benefits in 2035 and 2098 could, respectively, be 23 percent and 28 percent smaller.
Another cause of Social Security’s deteriorating fiscal state is the growing population of seniors who are receiving more benefits than they are paying into the system.
According to the Peter G. Peterson Foundation, there were 5.1 workers per beneficiary in 1960. Today, the ratio is 2.8 to 1.
In addition, the CBO says that replacement rates will be higher, on average, for retired workers with lower incomes.
“In CBO’s projections, initial benefits replace more than one-third of average preretirement earnings for retired workers. Social Security’s formula for retirement benefits is progressive: People who have lower lifetime earnings receive benefits that are a larger percentage of their average preretirement earnings than people with higher lifetime earnings do,” the report states.
“Accordingly, initial replacement rates are higher, on average, for retired workers with lower earnings—that is, initial benefits replace a larger share of past earnings for those workers.”
As for disabled workers, if benefits are paid as scheduled, real (inflation-adjusted) initial benefits will be larger in the future than they are today “because of increases in real earnings.”
“On average, initial DI [disability insurance] benefits replace more than half of recent substantial earnings for those workers,” the CBO added. “Replacement rates are higher for disabled workers than for retired workers because disabled workers tend to have lower earnings overall.”
A Top Election Issue
The state of Social Security and Medicare is worrying voters.A recent CNBC poll showed that Social Security is “one of the top” issues or a “very important” topic determining who voters will support in November.
A July Nationwide Retirement Institute (NRI) annual Social Security survey found that a vast majority say that a White House contender’s position on Social Security reform would be a significant factor in how they vote in the election.
A June Gallup survey found that 80 percent of adults under 65 say they are “worried” or “extremely worried” that Social Security will be unavailable when they are eligible to receive benefits. This is up by 5 percent from 2022.
Likewise, 73 percent said they are “worried” or “extremely worried” that Medicare will not be accessible when they can tap the program. This, too, is up by 6 percent from two years ago.
Nearly one-quarter (23 percent) of respondents think they will not receive any Social Security benefits, the NRI poll found.
The growing fears align with a wide array of reports spotlighting fiscal challenges affecting these programs.
In June, the U.S. House Budget Committee projected that Social Security benefits could face a 21 percent cut in the coming decade, and Medicare Part A benefits could decrease by 11 percent.
Meanwhile, how has the issue of Social Security fared in the 2024 presidential election race?
Former President Donald Trump pledged to eliminate taxes that seniors pay on Social Security should he win the race, telling voters that seniors “should not pay taxes on Social Security, and they won’t.”
The Committee for a Responsible Federal Budget predicts that abolishing taxation of Social Security benefits would reduce revenues by about $1.8 trillion between fiscal years 2026 and 2035.
It remains unclear where Vice President Kamala Harris stands on the issue. As a U.S. Senator, Harris co-sponsored the Social Security Expansion Act, a bill that would have adjusted the cost-of-living adjustment (COLA) methodology and raised minimum benefits.
President Joe Biden “opposes any proposal to cut benefits,” according to a White House budget fact sheet issued in March.
One prominent economist suggests that Trump’s proposal to cut Social Security tax might exacerbate the situation.
Economist Laurence Kotlikoff said that while the Social Security tax is “a terribly structured tax,” abolishing the levy would result in “cutting trillions in Social Security revenue in a system that’s already $63 trillion in the red.”
This $63 trillion figure represents off-the-books, long-term unfunded liabilities representing more than 200 percent of the GDP.
The “right way” to fix Social Security is by “retiring the current system, paying, over time, all accrued benefits to current retirees and workers and setting up a modern, progressive, fully funded version of Social Security as outlined here,” Kotlikoff, the co-author of “Social Security Horror Stories—Protect Yourself from the System and Avoid Clawbacks,” wrote in a Substack post.
The economic think tank Committee to Unleash Prosperity calls taxes on Social Security benefits “unfair,” noting that the idea to eliminate them could be “popular with voters over the age of 65.”
“This plan only benefits seniors. There are no retirees who lose under this plan,” the group said.
Economists at the Peter G. Peterson Foundation have presented a diverse collection of policy solutions to repair Social Security, such as hiking or payroll taxes, raising the retirement age and indexing it to increases in longevity, or adjusting benefits.
“Policymakers face the challenge of preserving the retirement system in a fiscally sustainable way that would strengthen support for those who need it the most while recognizing the limited ability of retirees and near-retirees to adjust to major disruptions in their financial situations,” the think tank said in a report.
The Social Security Administration will not announce any final adjustments until early October. COLA estimates from the Senior Citizens League suggest that 2025 benefits could rise by 2.57 percent.
