AARP Hearing Center
According to the 2024 annual report of the Social Security Board of Trustees, the surplus in the trust funds that disburse retirement, disability and other Social Security benefits will be depleted by 2035. That's one year earlier than the trustees projected in their 2023 report.
That does not mean Social Security will no longer be around; it means the system will exhaust its cash reserves and will be able to pay out only what it takes in year-to-year in Social Security taxes. If this comes to pass, Social Security would be able to pay about 83 percent of the benefits to which recipients are entitled.
The money in the trust funds — one for “Old-Age and Survivors Insurance” (the official name for benefits paid to retirees and their families) and one for disability benefits — comes from three sources. Here's how they broke down in 2023:
- 91.3 percent of Social Security revenue came from a 12.4 percent tax on most American workers' earnings, which the government collects through FICA payroll taxes (and employer matches) or the SECA taxes paid by self-employed people through their IRS returns.
- 3.75 percent came from federal income taxes some Social Security recipients pay on their benefits.
- 4.95 percent came from interest on the trust fund holdings, which are invested in special U.S. Treasury securities.
The trust funds had $2.79 trillion in reserves at the end of 2023, but benefit payments going out are increasingly outstripping income, thanks to demographic and actuarial trends. While the boomers are swelling the ranks of retirees (and living longer, thus collecting benefits longer), lower birth rates in subsequent generations mean there are fewer workers paying into Social Security.
The upshot is that if no changes are made, the system will run through its reserve assets by 2035, if not sooner. For years, lawmakers and policy experts have been debating proposals to shore up Social Security’s finances, most falling into two broad categories: changing tax policies to steer more money into the trust funds or tinkering with the benefit formula to reduce costs (or some combination of both).
Keep in mind
FICA and SECA taxes also generate a revenue stream for Medicare, which flows into the trust fund that finances Medicare Part A (hospitalization coverage). The 2024 Medicare trustees report projects that fund will run out of reserves in 2036, after which Medicare will be able to pay 89 percent of scheduled benefits.
Andy Markowitz is a writer and editor for AARP, covering Social Security and fraud. He is a former editor of The Prague Post and Baltimore City Paper.
Tracy Thompson is a journalist and editor who has worked for the Atlanta Journal-Constitution and the Washington Post. She is the author of three books and lives with her family in the Washington, D.C., suburbs.
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