The latest report from the Social Security Administration (SSA) trustees has some concerning news for future retirees. According to the report, the Old-Age and Survivors Insurance (OASI) Trust Fund is expected to run out of reserves by 2034. If nothing changes, this could result in a 23% automatic reduction in benefits for retirees unless Congress takes action.
Currently, the combined reserves of the Old-Age, Survivors, and Disability Insurance (OASDI) programs—funding around 70 million Americans—are projected to cover only 81% of the scheduled benefits starting in 2034. This marks a slight shift from last year’s estimate, and it highlights the growing uncertainty surrounding the long-term stability of the program.
Why Is the Shortfall Happening?
Several factors are contributing to the worsening outlook for Social Security. First, the recent passage of the Social Security Fairness Act in early 2024, which repealed the Windfall Elimination Provision and Government Pension Offset, has unexpectedly increased benefit obligations. The idea behind the act was to improve fairness and expand access, but it’s also put extra financial strain on the OASI fund.
Then, there’s the issue with the U.S. fertility rate, which remains well below the replacement level. At just 1.6 children per woman, it’s not expected to return to the replacement rate of 1.9 until 2050—about a decade later than previously anticipated. A lower birth rate means fewer workers in the future to contribute payroll taxes, which directly impacts the Social Security fund.
Lastly, there’s a revision in projections for worker wages as a percentage of the GDP. This revision has led to a decline in anticipated payroll tax revenues. Since payroll taxes provide about 90% of Social Security’s income, any dip in wage growth could have serious implications for the program’s sustainability.
A Breakdown of Social Security’s Finances (2024 Data)
Source of Funds:
- Payroll Taxes (FICA/SECA): 89.6%
- Taxation of Benefits: 4.6%
- Interest on Trust Fund Reserves: 5.8%
Program Spending:
- Retirement and Survivors Benefits: 79.9%
- Disability Benefits: 13.5%
- Administration Costs: 0.7%
What Happens If No Action Is Taken?
If the OASI Trust Fund runs out in 2034, Social Security will still receive revenue from payroll taxes. But it will only be enough to cover about 77% of retirement, spousal, and survivor benefits. Disability benefits, on the other hand, won’t see any immediate reductions, as the Disability Insurance (DI) Trust Fund is expected to remain solvent until 2099.
For many Americans, particularly the 50% of seniors who rely on Social Security for most or all of their income, this would be a drastic shift, and it could have a significant impact on their financial well-being.
What Are Lawmakers Proposing?
To address the funding shortfall, lawmakers are considering several proposals. For instance, Democrats have introduced the Social Security Fair Share Act, which would apply payroll taxes to income above $400,000. Meanwhile, Senator Bernie Sanders has pushed for applying taxes to income over $250,000 and merging the OASI and DI funds.
On the other side, Republicans have suggested raising the retirement age gradually, in response to longer life expectancy. This proposal is part of a broader entitlement reform package in the 2024 Republican Study Committee’s budget.
Advocacy groups are pushing for quicker action. “The time to strengthen Social Security is now,” said Max Richtman, president of the National Committee to Preserve Social Security and Medicare. He warned that delaying action would only increase the risks for millions of current and future retirees.
It’s clear that something needs to be done, and soon. The stakes are high, especially for those who depend on Social Security to make ends meet.
