Social Security’s reserves could vanish in eight years, roughly on par with previous estimates, according to a new report. At that point, if no adjustments are made, the entitlement program’s trust fund will be able to pay out just 77% of benefits to seniors.
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Is there any hope? Only if Congress gets its act together and makes some fixes, which are doable. “A huge number that lawmakers have allowed this to run out of control — but it doesn’t change the fact that we have the tools we need to address this problem and turn the ship around,” Emerson Sprick, an economist and associate director of the Economic Policy Program at the Bipartisan Policy Center, told Yahoo Finance.
Some slightly good news: If the OASI were combined with the fund that pays out disability benefits — the Disability Insurance Trust Fund — the reserve fund would not go broke until the third quarter of 2034, three quarters sooner than reported last year, and it would shell out 81% of scheduled benefits.
However, the two funds can’t be combined, at least for now. The combined projection of the two funds is frequently used to indicate the overall status of the Social Security program.
But the situation is worse than you think. “Since last year’s report, one law was enacted that is projected to have a substantial effect on Social Security’s financial status — The Social Security Fairness Act was enacted on January 5th, 2025,” said a senior government official.
This law, the Social Security Fairness Act, impacts more than 3 million Social Security recipients by increasing monthly benefits for certain types of workers, including some teachers, firefighters, and police officers in many states, federal employees covered by the Civil Service Retirement System, and people whose work had been covered by a foreign social security system.
“Although it’s not reflected in the projected year of trust fund depletion, the report shows clearly that Social Security’s financial outlook has worsened over the last year, mainly due to the enactment of the act,” said Sprick, the economist.
The Medicare Hospital Insurance trust fund will also exhaust its reserves in 2033, three years earlier than projected last year, primarily due to the change in projected expenditures.
The projected shortfall for Medicare — which covers 67.6 million people: 60.3 million aged 65 and older, and 7.3 million disabled — largely stems from the rising cost of healthcare. This increase is mainly a result of higher-than-anticipated 2024 expenditures and higher projected spending for inpatient hospital and hospice services, according to the senior government official.
The Social Security program paid nearly $1.47 trillion in benefits last year to about 68 million Americans. For about half of seniors, Social Security provides at least half of their income, and for about 1 in 4 seniors, it accounts for at least 90% of their income.
There are plenty of factors beyond the new law that are responsible for the dwindling till and have been festering for years.
Stepping back to look at the bigger picture over 75 years, the Trustees project that the Social Security trust funds face a 3.82% taxable payroll shortfall, up significantly from 3.5% last year, according to the senior official. That’s a persistent problem — the share of total earnings subject to payroll tax has decreased significantly. Social Security is mostly a pay-as-you-go program. Payroll taxes collected from workers now pay out the benefits to current recipients.
Part of the problem is that people are living longer and the birth rate is falling, so the ratio of workers to beneficiaries is shrinking. During 2024, an estimated 184 million people had earnings covered by Social Security and paid payroll taxes on those earnings.
Total income, including interest, to the combined OASI and DI Trust Funds amounted to $1.42 trillion in 2024. Almost 91% of that revenue, or $1.29 trillion, came from payroll taxes, $55 billion from taxation of Social Security benefits, and $69 billion in interest earned on the government bonds held by the trust funds.
However, much of wage growth has gone to higher earners, reducing the percentage of wages subject to Social Security tax, the official said. “Earnings for the roughly 6% of workers above the taxable maximum level increased much more rapidly than earnings for the 94% of workers below the taxable maximum level, so that the share of total earnings subject to the payroll tax has declined.”
The ceiling: $176,100.
That means payroll taxes will contribute a smaller percentage to Social Security’s revenues.
This factor is largely responsible for the worsening financial status of the trust funds compared to the projections in 1983 after the last major amendments, when the combined trust funds were projected to become depleted after 2050.
“Congress must act,” AARP CEO Myechia Minter-Jordan said in a statement. (U.S. Photographer: Al Drago/Bloomberg) ·Bloomberg Creative Photos via Getty Images
Certainly, other issues will be tossed into the equation moving ahead. One possibility that the trustees will be watching is the impact the administration’s immigration policy might have on future population growth and, subsequently, future workers paying into the Social Security system, including the number of foreign-born workers who pay into the program.
“Congress must act,” AARP CEO Myechia Minter-Jordan said in a statement.
Several solutions exist to fix the shortfall, including ratcheting up payroll taxes, which currently fund the program at 12.4%, split evenly between employees and employers.
Other proposals include raising the retirement age for younger workers or lifting the cap on the amount of a person’s income that is subject to the Social Security tax. For 2025, the Social Security tax limit is $176,100.
The current rate for Medicare is 1.45% for the employer and 1.45% for the employee, or 2.9% total. There is no wage cap for Medicare. And employers are responsible for withholding 0.9% additional Medicare tax on an individual’s wages paid in excess of $200,000.
“Congress has always acted to avert past shortfalls, and will again. Allowing a 15-20% immediate benefit cut to go into effect would be political suicide,” said Nancy Altman, president of Social Security Works.
Congress has eight years, and the clock is ticking.
