Issue Briefs

The trustees project that in 11 years Social Security will be unable to pay scheduled benefits in full and on time. Image: zimmytws/

Following is an analysis by the Congressional Research Service of the latest report from Social Security on the status of its trust funds.

According to the 2024 report of the Board of Trustees of the Social Security Trust Funds, the program’s finances are in a similar, albeit marginally better, position in 2024 relative to what they were in 2023. Under intermediate assumptions, the projected combined trust fund asset depletion date is 2035 (versus 2034 in last year’s report), after which the percentage of benefits payable would be 83% (versus 80% in the 2023 report).

Social Security Overview

Social Security is a self-financing program that in 2024 covers approximately 182 million workers and provides monthly cash benefits to over 67 million beneficiaries. It is the federal government’s largest program in terms of both the number of people affected (i.e., covered workers and beneficiaries) and its finances. Social Security is composed of Old-Age and Survivors Insurance (OASI) and Disability Insurance (DI), referred to collectively as OASDI.

The OASDI program is primarily financed (91.3% of total revenues in 2023) through a payroll tax applied to Social Security–covered earnings up to an annual limit. Some beneficiaries pay income tax on a portion of their Social Security benefits, providing a second source of program financing (3.8% of total revenue in 2023). From 1983 to 2009, the OASDI program collected more in tax revenues than needed to pay benefits. Excess revenues are held in interest-bearing U.S. Treasury securities, providing a third source of funding for the program (5.0% of total revenues in 2023). Monthly benefits are the largest OASDI program cost (99.1% of total costs in 2023). Administrative and other costs account for the remainder of program costs.

The Trust Funds

Both the OASI and DI programs use a trust fund financing mechanism. Monies credited to these trust funds are earmarked for paying Social Security benefits and certain administrative costs. Using a trust fund allows the OASI and DI programs to track their respective programs’ revenues and costs and to hold any accumulated assets from years when revenues exceed costs. The OASI Trust Fund and DI Trust Fund are legally distinct entities. They are discussed here collectively as the OASDI trust funds.

A Board of Trustees manages the trust funds. The trustees’ annual reports to Congress on the trust funds’ status and financial operations include short-range (10-year) and long range (75-year) projections. In general, the trust funds’ solvency—the ability to pay full benefits scheduled under current law on a timely basis—indicates their status. If assets held in the trust funds were to be depleted, the OASDI program could pay out in benefits only what it receives in revenues.

In the 2024 report, the trustees project a date of 2033 for OASI trust fund reserve depletion. The DI trust fund is not projected to become depleted in the 75-year projection period. As stated, “the DI program continued to have low levels of disability applications and benefit awards through 2023. Disability applications have declined substantially since 2010, and the total number of disabled-worker beneficiaries in current payment status has been falling since 2014.” The 2023 and 2022 reports also projected that the DI trust fund would not become depleted inside the 75 year projection period.

In the previous year’s (2023) report, the trustees projected that the trust funds’ overall balance (i.e., the total amount of accumulated asset reserves) would decrease. Asset reserves held in the trust funds decreased less than expected during 2023, owing to larger-than projected revenues relative to larger-than-projected costs.

Since 2010, total costs (i.e., scheduled benefits and administrative costs) have exceeded noninterest revenue (i.e., tax revenues). In 2023, total costs exceeded total revenues (i.e., tax revenues and interest revenue). The same projection is made in the 2024 report (Table 1). If this projection were to be realized, the trust fund asset reserves would continue to decrease. As such, trust fund asset reserves are predicted to decline from their peak value of $2.91 trillion in 2021 to $0 in 2035. Upon the trust funds’ asset reserves depletion, the trustees project that income from tax revenues would be sufficient to pay approximately 83% of scheduled benefits in 2035 and decrease to 73% by 2098.

Projected Long-Range Financial Outlook

The 2024 report projects a long-range funding shortfall. The funding shortfall is largely a result of rising costs over the 75-year projection period, primarily due to demographic trends. The ratio of OASDI beneficiaries per 100 covered workers, a common indicator of rising costs, is projected to remain the same as that in the 2023 annual report. The 2024 report projected an average of 45.5 beneficiaries per 100 covered workers over the 75-year projection, the same projection as in last year’s report. The historically high projected ratio of beneficiaries to workers is reflective of the projected future age distribution and suggests that program costs (i.e., monthly benefits) are projected to grow faster than program revenues (i.e., dedicated tax revenues). In 2023, the trustees estimated that costs would exceed revenues by 22.7% over the projection period. In 2024, the trustees estimate that costs will exceed revenues by 22.2% over the next 75 years.

If the total program revenues were to exceed total costs annually, the program would have a surplus; if the total program costs were to exceed the total revenues, the program would have a deficit. The trustees project the program to have a deficit in 2024—just as in the three previous years—and for all remaining years in the 75-year projection period.

The actuarial balance, a summarized measure of the annual surpluses and deficits over the projection period, is one measure of the Social Security program’s long-range financial position. When the actuarial balance results in higher costs than revenues over the projection period, the program is described as having an actuarial deficit. In 2023, the trustees estimated the long-range actuarial deficit over the next 75 years to average 3.61% of taxable payroll (i.e., total earnings subject to the OASDI payroll tax with some adjustments). In 2024, the trustees estimated the long range actuarial deficit over the next 75 years to average 3.50% of taxable payroll. This amount represents the average increase in the payroll tax over the 75-year projection period that would be needed for the program to pay full scheduled benefits on time and maintain trust fund reserves equal to one year’s cost.

The decrease in the estimated actuarial deficit—0.11% of taxable payroll—is mainly attributable to an increase in the level of labor productivity and lower assumed disability incidence rates over the projection period. These two changes, in combination with others, resulted in a projected increase of the employment rate for the working-age population. However, changes advantageous to the program’s long-range finances were partially offset by a lower assumed ultimate total fertility rate (TFR) that is reached in 2040 versus 2056 in last year’s report. Consequently, a lower ultimate TFR contributes to a higher projected ratio of OASDI beneficiaries per 100 covered workers (i.e., an imbalance between beneficiaries collecting benefits and workers paying into the system). As stated, “The Trustees believe that an incremental lowering of the ultimate TFR is warranted, consistent with recent surveys of birth expectations and the continued low level of the TFR in recent years.”

As in previous years, a shifting of the 75-year valuation period—from 2023-2097 to 2024-2098—means that a large negative annual balance for 2098 is now included in the actuarial balance. For comparison purposes: “If the assumptions, methods, starting values, and the law had all remained unchanged from last year, the actuarial deficit would have increased to 3.67 percent of payroll solely due to advancing the valuation period by 1 year, from 2023 through 2097 for last year’s report to 2024 through 2098 for this year’s report.”

What Can Be Done?

The trustees project that in 11 years Social Security will be unable to pay scheduled benefits in full and on time. To illustrate the magnitude of changes needed to make Social Security solvent over the next 75 years, the trustees estimate the hypothetical payroll tax increase or hypothetical benefit reduction needed to maintain solvency. These hypothetical changes would take immediate effect and apply to all current and future workers and beneficiaries. The table also shows estimates for changes that would be needed at the projected 2035 insolvency date.

In the 2024 report, the size of the payroll tax increase and benefit reduction needed to maintain solvency are smaller than estimated in 2023. However, each report shows that larger changes—payroll tax increases or benefit cuts—are needed as the insolvency date approaches. This characteristic is attributable to the program’s rising costs. As in many previous reports, the trustees state, “Implementing changes sooner rather than later would allow more generations to share in the needed revenue increases or reductions in scheduled benefits.” That is, changes implemented sooner would allow workers and beneficiaries more time to change behavior and adjust expectations.

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