Day of Reckoning for Social Security Draws Closer
In ten years, Americans counting on Social Security benefits for income will be in for a shock.
The shock will come because the trust fund that provides about one-fifth of the cash Social Security benefits receive will run out of money in 2033. Starting in 2034, under current law, Social Security will only have enough money to pay 79% of its promised benefits. Everyone who receives retirement benefit payments from Social Security in that year will see that income stream slashed.
That’s according to Social Security’s Trustees, who issued their 2024 report in May. When the Old Age and Survivors’ Insurance (OASI) trust fund is depleted, the agency can only pay benefits from the money it collects through its dedicated payroll taxes. Technically, because that’s what is written into the current law, those reduced benefits are also promised benefits.
None of this is really news. Social Security’s trustees have been telling this same basic story for much of the last decade. The only parts of the story that have changed are the projected timing for when the trust fund will run out of money and how big the benefit cuts will be when that happens. As we get closer to these projected events, the Trustee’s estimates of their timing and the size of the benefit cuts have firmed as they should. At ten years out in 2024, they are no longer long-term projections.
Costly Choices Lie Ahead
Social Security’s trustees have some ideas for keeping Social Security’s retirement benefits at their 2033 level. One of those ideas involves taking money from its Disability Insurance trust fund and using it to pay both retirement and disability benefits. Doing that would delay benefit cuts for two years, after which all these benefit payments would be cut by 17%. The cuts would then continue, growing slowly until they reach 27% in 2098.
Another option would be to increase the payroll taxes that fund Social Security benefits. Right now, that’s 12.4% of the wage and salary income earned by working Americans, and most see half that amount come straight out of their paychecks while employers pay the other half. To avoid cutting Social Security benefits, the Trustees estimate they would have to increase the total employee and employer payroll tax rate to 15.73%.
A third option would hinge on when those who receive Social Security benefits start getting them. They could keep everyone who is already receiving Social Security benefits as of 2023 from experiencing any cuts. Doing that, however, would mean bigger benefit cuts for everyone who starts receiving benefits after that year. If they take this approach, anyone who starts collecting benefits in 2024 or after would see their benefits cut by almost 25%.
They could also mix and match these options. No matter what, whatever happens will take an act of Congress.
Speaking of which, Congress has at least six new Social Security bills to consider. One way or another, Social Security reform is coming. Whether anyone likes it or not.
