Absent Congressional action, the combined balances in Social Security’s trust funds will be exhausted in fiscal year 2034—one year later than was predicted last year by the nonpartisan Congressional Budget Office (CBO) in its recently released 2024 Long-Term Projections for Social Security.
That’s the good news. The bad? If that were to happen, monthly Social Security benefit checks would be about 23% smaller than scheduled benefits in 2035, CBO projects. That could mean beneficiaries will only receive 77 cents on every dollar they are due. This would cut roughly $391 from the average retired American’s $1,700 monthly Social Security check.
Earlier this year, the Social Security Trustees Report found the combined asset reserves of the Old-Age and Survivors Insurance and Disability Insurance (OASI and DI) Trust Funds are projected to have enough dedicated revenue to pay all scheduled benefits and associated administrative costs until 2035, which is actually one year later than projected last year, with 83% of benefits payable at that time.
The two funds could not actually be combined unless there were a change in the law, but the combined projection of the two funds is frequently used to indicate the overall status of the Social Security program.
In CBO’s new projections, the balance of the OASI Trust Fund is exhausted in fiscal year 2033, and the balance of the DI Trust Fund is exhausted in 2064.
CBO projects that if Social Security paid benefits as scheduled, spending on the program would increase from 5.1% of gross domestic product (GDP) in 2024 to 6.7% in 2098. That increase is attributable to the growing share of the population age 65 or older. The program’s revenues would remain near 4.5% of GDP during that 75-year period. After 2098, the gap between revenues and outlays as a percentage of GDP would widen, and shortfalls would continue to grow.
Social Security’s actuarial deficit over the next 75 years, a summary measure of the program’s sustainability, is equal to 1.5% of GDP or 4.3% of taxable payroll (total earnings subject to the Social Security payroll tax).
Average initial benefits are projected to increase over time in real terms (that is, after COLA adjustments to remove the effects of inflation). For people born from the 1950s to the 1990s, those initial benefits replace more than one-third of preretirement earnings for retired workers and more than half of average recent earnings for disabled workers.
Within a cohort of Social Security recipients who were born in the same decade, people with higher earnings generally receive larger benefits than people with lower earnings, but those larger benefits replace a smaller share of their previous earnings. People with higher earnings also generally pay a larger dollar amount—but a smaller share of their lifetime earnings—in Social Security payroll taxes. The Social Security program is progressive in that lifetime benefits tend to be larger relative to lifetime payroll taxes for people with lower earnings than for people with higher earnings.
SEE ALSO:
• Social Security Benefits Need 23% Cut in 2034 Without Action: CBO
• CBO Extends Timeline for Social Security Trust Fund Depletion