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How much longer will Social Security be around?

According to the 2021 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 2034. That's one year earlier than the trustees projected in their 2020 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 78 percent of the benefits to which retired and disabled workers 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:

  • 89.6 percent from the 12.4 percent Social Security tax paid on most American workers’ earnings, through FICA payroll taxes (and employer matches) or the SECA taxes paid by self-employed people through their IRS returns.
  • 3.6 percent from income taxes Social Security recipients pay on their benefits.
  • 6.8 percent from interest on the money in the trust funds.

The trust funds had $2.9 trillion in reserves at the end of 2020, 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, and collecting benefits, longer), lower birth rates in subsequent generations mean there are fewer workers paying into Social Security.

The coronavirus pandemic has also had an impact on the system's long-term finances, as large-scale job losses cut into the payroll tax revenue that largely funds Social Security. 

The upshot is that if no changes are made, the system will run through its reserve assets by 2034, 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 2021 Medicare trustees report projects that fund will run out of reserves in 2026, after which Medicare will be able to pay 91 percent of scheduled benefits.

Updated September 1, 2021

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