Absent Congressional action, we are now just one decade away from the Social Security trust fund becoming depleted, with only 77% of benefits payable by 2033, according to the Social Security Board of Trustees annual report on the financial status of the Social Security Trust Funds, released today.
That’s one year sooner than the projection in last year’s report.
The 2023 Annual Report to Congress also says the combined asset reserves of the Old-Age and Survivors Insurance and Disability Insurance (OASI and DI) Trust Funds are projected to become depleted in 2034, which is also one year earlier than projected last year, with 80% of benefits payable at that time. However, by law, the two funds are separate entities and therefore the combined fund operations and reserves are hypothetical.
The much smaller DI Trust Fund asset reserves are not projected to become depleted during the 75-year projection period.
“The Trustees continue to recommend that Congress address the projected trust fund shortfalls in a timely fashion to phase in necessary changes gradually,” said Kilolo Kijakazi, Acting Commissioner of Social Security. “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.”
Renewed calls for fixes
The new estimates immediately prompted renewed calls for fixes to the programs, including from Treasury Secretary Janet Yellen. “Social Security and Medicare are two bedrock programs that older American rely upon for their retirement security,” Yellen said in a statement today. “The Biden-Harris Administration is committed to ensuring the long-term viability of these critical programs so that retirees can receive the hard-earned benefits they’re owed.”
“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.”
Bipartisan Policy Center’s Jason Fichtner
Bipartisan Policy Center Vice President and Chief Economist Jason Fichtner said today that while rumors of behind-the-scenes congressional talks swirl, he continues to hear partisan and absolutist rhetoric from many leaders on the Hill and in the Executive.
“We have long known that Social Security is on an unsustainable financial path. Today’s Social Security Trustees report only reinforces the urgent need for Congress to shore up this crucial program on which so many hard-working Americans depend,” Fichter said. “It is particularly alarming that the Trustees now expect the old-age and survivors insurance trust fund to run dry in 2033, one year earlier than last year’s projection. At that time, benefits for all recipients will be reduced by nearly 25%. 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. 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.”
Michael A. Peterson, CEO of the Peter G. Peterson Foundation, a nonprofit, nonpartisan organization dedicated to increasing public awareness of the nature and urgency of key fiscal challenges threatening America’s future, said in a statement the report makes it clear that doing nothing is not an option.
“If lawmakers fail to act on Social Security, within a decade all current retirees would face a 23% automatic cut, reducing the average annual benefit by $6,000 and growing every year,” Peterson said. “Ultimately, ignoring these Trustee reports won’t make our nation’s entitlement problems go away, it will just make them more difficult to fix down the road.”
Based on a first look at the report, Mary Johnson, Social Security and Medicare policy analyst at The Senior Citizens League, says there are no real surprises. She notes the insolvency date moved forward to 2034, but also that last year the Trustees moved it back to 2035 after they had forecast the 2034 insolvency date in 2021.
“However, we have had two years of higher than expected COLAs, 5.9% in 2022 and 8.7% in 2023 and we were expecting to see some erosion in Trust Fund solvency for that reason,” Johnson told 401(k) Specialist Friday. “I notice the intermediate COLA forecast is 3.3% for 2024 and 3.1% for their ‘low cost’ forecast. Those are in line with CPI-W data through February 2023, but the COLA in 2024 may be lower.”
She added she suspects the 2024 COLA could be lower than the actuaries forecast.
Running the numbers
The report, released Friday by the Treasury Department, notes that roughly 66 million Americans received Social Security benefits in 2022. A vast majority, or about 57 million of those people, received benefits through the OASI Trust Fund, compared to only about 9 million people who received benefits through the DI Trust Fund.
The number of beneficiaries for the OASI Trust Fund rose by 2% in 2022, while the DI Trust Fund saw a 4.1% drop in people receiving benefits last year. The report attributes the changes largely to the shifting age distribution of the adult population.
The asset reserves of the combined OASI and DI Trust Funds declined by $22 billion in 2022 to a total of $2.830 trillion. The total annual cost of the program is projected to exceed total annual income in 2023 and remain higher throughout the 75-year projection period. Total cost began to be higher than total income in 2021. Social Security’s cost has exceeded its non-interest income since 2010.
Other highlights of the Trustees Report include:
• Total income, including interest, to the combined OASI and DI Trust Funds amounted to $1.222 trillion in 2022. ($1.107 trillion from net payroll tax contributions, $49 billion from taxation of benefits, and $66 billion in interest)
• Total expenditures from the combined OASI and DI Trust Funds amounted to $1.244 trillion in 2022.
• Social Security paid benefits of $1.232 trillion in calendar year 2022. There were about 66 million beneficiaries at the end of the calendar year.
• The projected actuarial deficit over the 75-year long-range period is 3.61% of taxable payroll—higher than the 3.42% projected in last year’s report.
• During 2022, an estimated 181 million people had earnings covered by Social Security and paid payroll taxes.
• The cost of $6.7 billion to administer the Social Security program in 2022 was a very low 0.5% of total expenditures.
• The combined trust fund asset reserves earned interest at an effective annual rate of 2.4% in 2022.
The Board of Trustees usually comprises six members. Four serve by virtue of their positions with the federal government: Janet Yellen, Secretary of the Treasury and Managing Trustee; Kilolo Kijakazi, Acting Commissioner of Social Security; Xavier Becerra, Secretary of Health and Human Services; and Julie Su, Acting Secretary of Labor. The two public trustee positions are currently vacant.
Read the 2023 Social Security Board of Trustees Annual Report HERE.
EDITOR’S NOTE: This article has been updated to include additional insights in response to today’s report.
SEE ALSO:
• Social Security Gains Another Year of Solvency: 2022 Trustees Report
• Latest Bill Pushes for Increased Social Security Earnings Limit
• Older Adults Greatly Underestimate Social Security Benefits: NBER Research
• 2024 Social Security COLA Could Drop Below 3%