Social Security holds off insolvency until 2035, one year later than projected, thanks to stronger economy

By Jessica Hall

Last year, the Trustees expected benefit cuts would begin in 2034

The Social Security Trust Funds are scheduled to be depleted in 2035, one year earlier than was projected last year, the Social Security and Medicare Board of Trustees said in a report released Monday. At that point, beneficiaries will receive only 83% of promised benefits.

Social Security has two programs, one for retirees and another that provides disability benefits. Although the two trust funds are legally separate entities, the trustees combine the two reserves to illustrate the actuarial status of the Social Security program as a whole and give a picture of its solvency.

The hypothetical combined trust fund reserves will be depleted in 2035, one year later than projected in last year's report. The improved forecast was due to high levels of labor productivity and lower long-term disability incidence rate. These improvements were partially offset by a decrease in the assumed long-term total fertility rate, according to the trustees report.

Social Security provides retirement income to more than 50 million Americans. Among Americans ages 65 and older, 40% rely on Social Security for half or more of their income and about 14% of recipients 65 and older depend on it for 90% or more of their income, according to AARP.

"This reinforces what we've known for some time, which is that Social Security is running out of money. What's been happening for several years is that the reports vary by a year or two. But in reality, this additional year doesn't mean anything," said Richard Johnson, senior fellow and director of the program on retirement policy at the Urban Institute.

"The report tells us there are fewer workers to pay for retiree healthcare. That fundamental pressure is not going away so there have to be changes to the program in terms of benefit cuts or revenue increases. And there's not a lot of time to make changes," Johnson said.

Read: Opinion: This chart shows why Social Security is in crisis

Considered separately, the reserves of the Old-Age and Survivors Insurance trust fund, which pays out benefits to retirees and survivors, is expected to become depleted in 2033, the same as last year's projection. At the time of depletion, the fund would be able to pay only 79% of scheduled benefits.

The disability insurance trust fund asset reserves are not projected to become depleted during the 75-year period ending in 2098.

Read: Opinion: Waiting until 2035 to fix Social Security would be like waiting until you reach the iceberg before turning the Titanic

"This year's report is a measure of good news for the millions of Americans who depend on Social Security, including the roughly 50 percent of seniors for whom Social Security is the difference between poverty and living in dignity - any potential benefit reduction event has been pushed off from 2034 to 2035," said Martin O'Malley, commissioner of Social Security.

"More people are contributing to Social Security, thanks to strong economic policies that have yielded impressive wage growth, historic job creation, and a steady, low unemployment rate. So long as Americans across our country continue to work, Social Security can - and will - continue to pay benefits" O'Malley said.

In their report, the trustees recommended that lawmakers address the projected trust fund shortfalls "in a timely way in order to phase in necessary changes gradually and give workers and beneficiaries time to adjust to them."

"Implementing changes sooner rather than later would allow more generations to share in the needed revenue increases or reductions in scheduled benefits," the trustees said in the report.

The trustees report also looked at Medicare, including the Hospital Insurance trust fund that supports Medicare Part A, which pays for inpatient hospital care services. The expected depletion date for the Hospital Insurance trust fund is 2036, compared with 2031, which was the estimate last year. year. At that point, that fund's reserves will become depleted and would be able to pay only 89% of total scheduled benefits.

Medicare is the primary or only source of healthcare for most older Americans. About 66 million individuals are currently enrolled in Medicare. Of those, more than 57 million are aged 65 and older and more than 8 million are younger people with disabilities, according to AARP.

"It's good news when we can add a year to Social Security and good news for Medicare when we can add five years, but we worry that extra time makes it even less urgent for Congress to act on reforms. They can't afford to keep kicking the can down the road," said Bill Sweeney, senior vice president of government affairs for AARP. "It's already hard to get Congress to focus on things they need to focus on tomorrow, let alone years from now."

The last major changes to bolster Social Security's finances were made in 1983. Part of those changes included a gradual increase of the full retirement age to 67 from 65.

The issue of Social Security has been grabbing headlines in recent months, with President Biden saying in his State of the Union speech that he would stop anyone from trying to cut Social Security or Medicare, or raise the retirement age.

For Americans born in 1960 or after, the full retirement age is 67.

Presumptive Republican presidential candidate Donald Trump, meanwhile, told CNBC that "there is a lot you can do in terms of entitlements in terms of cutting and in terms of also the theft and the bad management of entitlements." Trump's campaign said he did not say he would cut entitlements.

-Jessica Hall

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05-07-24 0957ET

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