The State of Social Security Funding Remains Troubling

The Future of Social Security: A 2035 Deadline Looms

In a startling revelation from the Social Security Administration (SSA), it's been projected that the trust funds supporting benefits for approximately 67 million Americans may deplete their resources by the year 2035. This information was presented in the SSA's latest annual report to Congress, igniting concerns over the longevity of this crucial social safety net.

Congress Faces a Critical Challenge

Unless Congress intervenes before the projected deadline, Social Security will be compelled to operate solely on the revenue generated from payroll taxes and other income sources to meet its obligations to retirees and beneficiaries. Unfortunately, if no remedial actions are taken to address this funding gap, the SSA estimates that only about 83% of the benefits that are currently scheduled can be paid out.

A Brief Moment of Hope?

On a more optimistic note, this year's report indicates an improvement from last year's outlook, which anticipated the funds running dry a year earlier, in 2034. The SSA attributes this unexpected delay to the benefits of a robust economy and rising wages, providing a ray of hope amidst the looming crisis.

Understanding the Trust Funds

The Social Security benefits are supported by two primary trust funds: the Old-Age and Survivors Insurance Trust Fund (OASI), established in 1940, and the Disability Insurance Trust Fund (DI) introduced in 1957. Currently, these combined funds hold reserves amounting to $2.788 trillion, although they diminished by $41 billion in the year 2023 alone.

2023 Financial Overview

During 2023, Social Security disbursed a staggering $1.379 trillion in benefits. However, when administrative costs and other expenditures were accounted for, total outlays hit $1.392 trillion.

The Revenue Breakdown

In the same calendar year, Social Security generated an income of $1.351 trillion, which can be broken down as follows: $1.233 trillion from net payroll taxes (contributed by around 183 million taxpayers), $51 billion from benefit taxation, and an additional $67 billion accrued from interest on asset reserves, reflecting an annual interest rate of 2.4%.

A Longstanding Shortfall

The $41 billion deficit observed in 2023 is not an isolated incident. Since 2010, expenditures have consistently outstripped non-interest income and, since 2021, have exceeded total income, including interest. The projections indicate that for the next 75 years, the costs of the program will likely continue to exceed the income.

A Demographic Shift

With declining birth rates nationwide and the proportion of retirees steadily increasing, the imbalance between the program's revenues and its expenses is expected to exacerbate. As of now, there are 36 Social Security beneficiaries for every 100 workers. By 2035, that ratio is projected to rise to 42 beneficiaries, peaking at 49 beneficiaries per 100 workers by 2085.

Political Hurdles Ahead

Congress is faced with a limited range of strategies to prevent the trust funds from plummeting into insolvency and to steer Social Security toward a more sustainable future. However, all these options come with significant political risks, particularly given the upcoming presidential election year. Potential solutions include increasing the payroll tax deductions for current workers or raising the retirement age—a move previously executed in 1983, when Congress incrementally raised the full retirement age from 65 to 67 over 33 years, as noted by the Bipartisan Policy Center.