In its 2024 annual report, the United States Social Security Board of Trustees raised a new alarm: the program’s trust funds will be exhausted sooner than expected, by the year 2035. This means that, from that date on, the Social Security will only be able to pay 77% of expected benefits to retirees and their families.
This news has generated great concern among the American population, especially among those who are approaching retirement age and do not know what Social Security has in store for them. Because many of them expect to rely on these retirement checks to cover much of their expenses once they retire from the workforce.
How Serious Is the Situation and What Does It Mean for Current and Future Beneficiaries?
To understand the complexity of the issue, it is important to understand how the Social Security system works. The program is funded by payroll taxes from current workers. These proceeds go into two trust funds:
- Old-Age and Survivors Insurance Fund (OASI): Pays retirement and survivor benefits.
- Disability Insurance (DI) Fund: Pays for short- and long-term disability benefits.
According to the Board of Trustees’ projections, the OASI will be the first to deplete its reserves, as early as 2033… yes, in nine years! A blink, and 9 years have passed, and we still do not see actions underway to avoid this debacle.
This means that, starting that year, the fund will only be able to cover 77% of the full expected benefits. The DI, for its part, will remain solvent until at least 2098.
What Will Happen to Social Security Beneficiaries and Their Payments?
Although the OASI will not be completely exhausted until 2033, the negative effects could begin to be felt by beneficiaries sooner. For starters, starting in 2030, the fund’s income could be insufficient to cover all the benefits the Social Security Administration (SSA) is required to pay, resulting in a gradual reduction of payments for beneficiaries who are receiving checks or deposits in that year.
For current retirees, this means the value of their monthly checks will be negatively impacted. Future beneficiaries will receive lower payments than they were promised, and that could lead to problems for these future retirees to cover their living expenses. Some experts also warn of a wave of lawsuits against the SSA for not meeting promised payments.
Social Security and Legislators Must Act Now to Avoid Having to Cut Payments
The trustees have warned that urgent action must be taken by both the SSA and Congress if the Social Security benefits catastrophe is to be avoided.
Among the proposed measures are increasing Social Security taxes, which will result in larger cuts to the salaries of contributing workers. On the other hand, they also ask to analyze the possibility of cutting the amounts of payments, or changes in eligibility to receive benefits.
Increasing the full retirement age (FRA) could also be a solution, which would definitely fall like a bucket of cold water on the soon-to-be beneficiaries. The trustees believe that increasing the full retirement age to 67 or 68 (the age at which 100% of earned benefits are collected) would reduce the number of years that retirees will collect checks, reducing overall spending of Social Security in each of them.
Finally, taxing higher incomes more heavily, those above $400,000 per year, for Social Security purposes has been on the table. Starting in 2024, up to $168,600 per year will be subject to Social Security taxes, limiting how much the SSA can pay in benefits.
The latter is one of the options that experts see as potentially more effective, but it would only eliminate 61% of the program’s funding shortfall, according to the University of Maryland. Therefore, it should not be considered the only and best option, and should be combined with other more comprehensive strategies.