Social Security Finances Continue to Deteriorate

Long-Term Fixes Remain the Same

By Mitchell J. Smilowitz, CPA

The 2023 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds shows that Social Security’s long-term ability to pay full benefits continues to deteriorate. But, the challenges facing the system are not fatal; Social Security will be able to pay 77% of scheduled benefits even after the Trust Fund is exhausted in 2033. A variety of fixes are available to place Social Security on a stable financial footing.

Key Findings of the Social Security Trustees’ Report

  • The Old-Age and Survivors Insurance (OASI) Trust Fund, which supports Social Security payments to retirees, widows, widowers and minor or disabled children, has sufficient reserves to pay 100% of scheduled benefits until 2033. This is one year less than the Trustees reported in 2022. Once the reserves are depleted, the Trustees estimate that program income, paid through the collection of FICA and SECA taxes, will only be enough to pay 77% of scheduled benefits.
  • The Disability Insurance (DI) Trust Fund, which pays for Social Security disability payments, is projected to pay for 100% of total scheduled benefits through at least 2097. This is an improvement over last year when the Trust was expected to run out of funds in 2096.
  • The Hospital Insurance (HI) Trust Fund that supports Medicare Part A can pay 100% of scheduled benefits until 2033. This is an improvement of three years over 2022’s Report. Once the HI Trust Fund is depleted, continuing program income will only be enough to pay 89% of scheduled benefits.
  • The Supplemental Medical Insurance (SMI) Trust Fund that supports Medicare Parts B and D is adequately financed into the indefinite future because its main financing sources, premiums on enrolled beneficiaries and federal contributions from the Treasury, are automatically adjusted each year to cover costs for the upcoming year.

Demographic Challenges Facing Social Security

While most of Social Security’s benefits are funded by payroll taxes collected from today’s workers, the program has also accumulated $2.8 trillion in Trust Fund reserves since 1983 when Congress passed a series of Social Security amendments designed to shore up the program’s finances. This surplus is being used to support payments to today’s beneficiaries.

Social Security’s fundamental challenge is demographic, there are fewer active workers today paying into Social Security and Medicare than there were in the past. In 1950, there were 16.5 workers for each beneficiary. Today there are only 2.8 workers for each Social Security and/or Medicare beneficiary. Additionally, the rising number of beneficiaries, rather than escalating costs per beneficiary, is also a fundamental challenge.

How to Solve the Funding Shortfall

Policymakers have proposed a number of possible fixes to the Social Security and Medicare funding shortfall.

  • Increase Social Security taxes paid by employers and employees.
  • Increase the taxes paid by Social Security beneficiaries on their Social Security income.
  • Raise the age at which workers can claim Social Security benefits.
  • Increase the maximum earnings subject to Social Security taxes.
  • Reduce benefits rather than increase program revenue.

Conclusion

The Trust Funds supporting Social Security and Medicare are being depleted. The Social Security Trust Fund is projected to run out of funds in 2033. After the Trust Funds are exhausted, Social Security will be able to pay reduced benefits based on income from current workers. These benefits are expected to be 77% of scheduled payments. Policy options for solidifying Social Security’s finances include increasing Social Security taxes paid by workers and employers, increasing income taxes paid by beneficiaries on Social Security income, raising the age at which workers can claim Social Security or reducing benefits.

For questions on Social Security or the Trustees’ Report, contact the JRB or call 888-JRB-FREE (572-3733).

Summary of the 2023 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds

May 2023