Social Security benefits could be slashed by 20% beginning in 2034 unless Congress comes up with a solution to bulk up trust funds. (iStock)
Social Security recipients could see their benefits cut by 20% as soon as 2034 unless Congress takes action, according to the annual trustees’ report recently released by the Treasury.
Trustees said that the Social Security trust funds will begin to run out of money by 2034, one year earlier than was projected. The revision comes on the expectation of slower near-term economic growth – gross domestic product and labor productivity were revised down by about 3% for the projected time period, according to the report,
Social Security has two programs, one for retirees and another that provides disability benefits. The Old Age and Survivors Insurance and Disability Insurance (OASI) trust fund is projected to become depleted in 2033, with 77% of benefits payable at that time.
The revised depletion dates come as estimates showed that Social Security trust funds declined by $22 billion in 2022 to a total of $2.830 trillion. Moreover, the costs of the program are projected to exceed its total annual income in 2023 and are anticipated to remain higher throughout the 75-year projection period, according to a recent Social Security Administration (SSA) statement.
“The Trustees continue to recommend that Congress address the projected trust fund shortfalls in a timely fashion to phase in necessary changes gradually,” Acting Commissioner of Social Security, Kilolo Kijakazi, said. “Social Security will continue to play a critical role in the lives of 67 million beneficiaries and 180 million workers and their families during 2023. With informed discussion, creative thinking, and timely legislative action, Social Security can continue to protect future generations.”
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The 2033 depletion date of the OASI trust fund is “particularly alarming,” according to Jason Fichtner, the chief economist at the Bipartisan Policy Center, a think tank promoting bipartisanship.
“Policymakers who are vowing never to touch the program or proposing purely partisan solutions are putting their heads in the sand and steering us toward the cliff,” Fichtner said in a statement. “BPC will continue to work with congressional leaders and executive branch officials in pursuit of urgently needed bipartisan solutions to sustain and improve this program.”
Social Security and Medicare funds are critical points of debate in the latest budget proposed by President Joe Biden.
The White House earlier this month laid out a plan to strengthen Social Security and Medicare. President Biden’s proposed budget would extend the life of the Medicare Trust Fund by at least 25 years by raising the Medicare tax rate on incomes above $400,000 and closing loopholes that enable high-income earners to be shielded from that tax.
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The news that Social Security funds may be depleted sooner than later comes as Americans face inflation and rising costs. Inflation hit 9.1% last June, a 40-year high and has since leveled off. However, Americans are still dealing with high prices on essentials like food, gas and shelter.
Persistent inflation could also mean that the Trustees may be too optimistic about its impact on Social Security funds, according to Mark Warshawsky, a senior fellow at the American Enterprise Institute (AEI).
“The Trustees were too optimistic about a lowering of price inflation reducing benefit increases and a rise in wage inflation increasing taxes collected in 2022,” Warshawsky said in a blog post. “Although they have corrected that view in line with reality in the 2023 Report for their projections for 2023 and 2034, compared to the consensus of economic forecasters, they are still too optimistic on price inflation.”
Most seniors (89%) are worried that the U.S. is in the grip of a retirement crisis, according to a recent survey from the American Advisors Group (AAG).
A third (32%) of Americans over traditional retirement age, between 65 and 74, are expected to be still working in 2030, a recent Voya Financial survey said. In 2000, only 19% of those between 65 and 74 were working.
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