Analysis of New Social Security Trustees Report Exposes Harsh Realities
The 2025 Social Security Trustees Report released on June 18 revealed that Social Security faces the largest financial shortfall in nearly half a century, and repeated prior warnings that the program is quickly barreling towards insolvency.
In just 8 years, all retired beneficiaries, regardless of age or need, will face an across-the-board 23% benefit cut unless necessary reforms are enacted. In that same year (2033), under current projections, their access to healthcare will be compromised by the insolvency of the Medicare Hospital Insurance trust fund.
By failing to act to reform Social Security and Medicare, government budget watchdogs say policymakers are implicitly endorsing deep across-the-board cuts to most current and future beneficiaries.
Here are some of the alarming insights and commentary about what’s revealed in this year’s report, courtesy of new analysis by the Committee for a Responsible Federal Budget (CRFB), The Bipartisan Policy Center, and The Brookings Institute.
Program’s outlook is worse
The 2025 Trustees Report finds Social Security’s outlook worsened since last year’s report—in large part due to higher benefits payable to certain beneficiaries as a result of the Social Security Fairness Act and the assumption of a longer transition to a higher fertility rate than previously assumed, say Gopi Shah Goda and Lily Nevo in a June 18 Brookings Institute commentary titled, “The real issues facing the Social Security program aren’t inefficiency or fraud.”
The 2024 Social Security Trustees’ Report estimated a 75-year actuarial imbalance of 3.50% of taxable payroll, which has increased to 3.82% in this year’s report. That long range 75-year imbalance is now the highest it has been in nearly half a century, having nearly doubled over the past 15 years from 1.92% of payroll in 2010 to 3.82% today, the CRFB analysis points out.
The insolvency date for the theoretically combined trust funds has also moved one year earlier, to 2034 from 2035.
The biggest driver of the worsened outlook—accounting for nearly half of the total—was the passage of the Social Security Fairness Act last year. That law essentially allows state and local workers with years not covered by Social Security to partially ‘double dip’ between their Social Security and alternative state or local pension benefits. The Trustees estimate it added 0.14% to Social Security’s shortfall.
Changing demographics also hurt outlook
An aging population is a major contributor to Social Security’s financial problems, according to a June 19 Trustees report “explainer” from Emerson Sprick, an economist and associate director of Economic Policy at the Bipartisan Policy Center.
“Instead of leaving on autopilot the most effective anti-poverty program in U.S. history, Congress must return to more active stewardship of Social Security and take steps to address the impact of rapidly changing national demographics.”
Emerson Sprick
In 1960, there were more than five workers paying Social Security taxes per beneficiary, but that ratio has dropped to just three-to-one, Sprick notes. It is projected to decline to less than 2.5-to-one by the middle of the century. One major reason: “Peak 65,” the period from 2024 to 2027 in which more than 4.1 million Americans are turning 65 each year, the largest surge of retirements in U.S. history.
And retirees are living longer. The explainer says life expectancy of a 65-year-old has increased by 50% since 1940.
At the same time, the payroll taxes that fund benefits are levied on a smaller proportion of total income than in the past: just 83%, compared to 90% in 1983. Americans earning more than the taxable maximum ($176,100 in 2025) have seen their incomes increase much faster than those earning less. And as the tax base has shrunk, the tax rate has stayed at 12.4% for more than 40 years.
He adds that Congress last reformed the program—addressing its then-looming insolvency in the process—more than 40 years ago. Prior to that, lawmakers regularly updated the program’s tax rates, tax base, benefit amounts, and other policy parameters. “Instead of leaving on autopilot the most effective anti-poverty program in U.S. history, Congress must return to more active stewardship of Social Security and take steps to address the impact of rapidly changing national demographics,” Sprick writes.
Cost of fixing it keeps rising
According to the Trustees, lawmakers could restore 75-year solvency with the equivalent of a 29% (3.65 percentage point) payroll tax increase, a 22% reduction in total benefits, or a 27% reduction in benefits for new beneficiaries if lawmakers were to act today (something anyone following the issue knows will not happen).
Delaying action until 2034 would increase the size of necessary adjustments by 15%. In that year, taxes would need to be raised by 34% percent (4.27 percentage points), benefits cut for all beneficiaries by 26 percent, or some combination. Changes to benefits for new beneficiaries alone would be insufficient to restore solvency to the program, even if benefits were eliminated entirely.
One way for the program to be able to pay all promised benefits through 2099, the Brookings commentary says, would be to raise the payroll tax rate immediately—and permanently—from the current rate of 12.4% of taxable earnings to 16.1%. In 2025, that increase would have amounted to an extra $374 billion in program revenue.
With each year that action is delayed, the worse Social Security’s finances become, and the harder it will be to enact reforms that avoid abrupt changes to taxes or benefits and that give workers and retirees time to plan,” the CRFB analysis concludes. “Inaction over the past 30 years has already taken many options off the table. For example, 75-year solvency can no longer be restored by ‘price indexing’ the growth in new benefits or by eliminating the cap on wages subject to the payroll tax.”
Upon insolvency, CRFB notes that Social Security is legally required to reduce outlays to match revenues, which would result in an across-the-board 23% cut in retirement benefits. This cut would grow to 31% by the end of the 75-year projection window. “We previously estimated the impact of such a cut, finding that a typical couple retiring in the year of insolvency would face a $16,500 reduction to their annual benefits. If the OASI and SSDI trust funds were combined, beneficiaries would instead experience a 19% benefit cut in 2034, growing to 28% by 2099.”
Researchers and policy experts have developed a number of proposals to close the financing gap, the Brookings commentary says. Policy options that raise revenues include the aforementioned increasing the payroll tax rate or broadening the income base to which that the payroll tax is applied. Options for reducing benefits include cutting benefits across the board, raising the retirement age at which a beneficiary is eligible for full benefits, reducing benefits disproportionately for higher earners, or changing the growth rate of benefits. “These policy levers can be combined in a number of sensible ways to address the shortfalls and strengthen the program’s future,” Goda and Nevo write.
Cutting ‘fraud, waste and abuse” won’t solve it
While the Trump administration and DOGE have championed efforts to “eliminate fraud, waste and abuse” in Social Security and other government programs, the Brookings commentary says it wouldn’t do much to help Social Security’s finances because the program is already comparatively very efficient.
Administering the program costs 0.5% of the program’s annual costs, meaning that out of every dollar the agency pays, 99.5 cents goes directly to beneficiaries, the Brookings commentary says. By contrast, recent estimates suggest that 65-year-olds who purchase annuity contracts from insurance companies can expect to receive about 92 cents back from every dollar they pay in premiums.
“This efficiency has been achieved with a relatively small—and still shrinking—workforce,” Goda and Nevo write. “In 2024, the Social Security Administration (SSA) employed approximately 57,000 total employees at its Baltimore headquarters and in 1,231 field offices across the country. This is down from 68,000 employees and 1,297 field offices in 2010 despite the rise in the number of beneficiaries as the Baby Boom generation has aged into eligibility for retirement benefits over this period.
SEE ALSO:
• 2025 Social Security Trustees Report Shows 23% Benefit Cut on Tap by 2033
• Nearly 22 Million Seniors Live on Social Security Alone: TSCL
• Social Security Payments Set to Hit Major Milestone in June
• Social Security Solvency Clock Ticking as Wait Drags On for 2025 Trustees Report
• Fears Spark Increase in Social Security Claims
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
