Government says social security funding shortage expected in 2035

People leave the Social Security Administration building in Burbank, California.

Valerie Macon | AFP | Getty Images

The trust fund the Social Security Administration uses to pay benefits is expected to be exhausted in 2035, a year later than previously expected, according to the agency. Annual Trustee Report Published Monday.

If Congress does not act soon to prevent funding shortfalls, 83% of benefits will be paid by the projected exhaustion date.

Social Security trustees attributed the slight improvement in prospects to more people contributing to the program amid a strong economy with lower unemployment and higher job and wage growth. Last year, trustees expected the program to be funded until 2034, at which time 80% of benefits would be paid.

“This year’s report is good news for the millions of Americans who rely on Social Security, including about 50 percent of seniors, for whom Social Security is the difference between poverty and a life of dignity—any potential welfare cuts have been postponed from 2034 to 2035, Social Security Commissioner Martin O’Malley said in a statement.

O’Malley, who is sworn in While leading the agency in December, he also urged Congress to expand the trust fund’s solvency “as it has in the past on a bipartisan basis.”

“Closing the gap will bring peace of mind to Social Security’s more than 70 million beneficiaries, the 180 million workers and their families who contribute to Social Security, and the entire country,” O’Malley said.

What the report reveals about Social Security, Medicare

Social Security’s new 2035 depletion date applies to its consolidated trust funds.

The trust fund will help pay benefits when needed funds exceed those brought in by payroll taxes. Currently, workers are subject to Social Security tax on 6.2% of their salary and Medicare tax on another 1.45%. A total of 7.65% is usually matched by the employer. High earners may be required to withhold an additional 0.9% of their health insurance premiums.

While the consolidated depletion date of Social Security trust funds is often used to measure the program’s solvency, these funds cannot actually be consolidated under current law.

Social Security’s two trust funds have different projected exhaustion dates.

The fund used to pay wages to retired workers, their spouses and children, and survivors, formally known as the Old Age and Survivors Insurance Trust Fund, is expected to run through 2033, unchanged from last year. At that time, 79% of scheduled benefits may be paid.

The fund used to pay disability benefits, called the Disability Insurance Trust Fund, will be able to pay full benefits until at least 2098, the last year of the forecast period.

Medicare solvency is typically measured by the trust fund’s ability to cover the payroll tax shortfall used to fund Part A hospital insurance.

The Medicare Hospital Insurance Trust Fund, which funds Part A benefits, made the most progress in this year’s trustee report. Its exhaustion date has now been pushed back to 2036 – five years later than last year’s forecast – in part because of higher payroll tax revenue and lower-than-expected spending in 2023.

At that time, 89% of scheduled benefits may be paid.

Medicare’s Supplemental Health Insurance Trust Fund—which covers voluntary Part B coverage for physician services and medical supplies as well as Part D prescription drug coverage—is funded indefinitely into the future because it relies on beneficiary premiums that automatically adjust each year and the Treasury Payment.

Why experts say now is the time to take action

While the new projected exhaustion date shows lawmakers have slightly more wiggle room, experts say solvency issues for Social Security and Medicare should be addressed sooner.

Bill Sweeney, the organization’s senior vice president for government affairs, said that for AARP, this issue is a top concern for members ages 50 and older. About 40 percent of households age 65 and older rely on Social Security for at least half their income, and about 20 percent rely on Social Security for all their income, he said.

for any Sweeney said the imminent reduction in Social Security benefits, and even being talked about, is “really scary for people.”

“Congress has a responsibility to sit down and address this issue in a bipartisan way,” Sweeney said. “The sooner they do that, the better.”

The new projected exhaustion dates make Social Security and Medicare’s timelines more similar than previous estimates. He said this could provide an opportunity for unified, one-step reform of these programs.