Without Reform, Social Security Could Become Depleted Within the Next Decade

In a recent report, the Congressional Budget Office (CBO) highlighted the financial challenges facing Social Security. As the largest program in the federal budget, Social Security is a critical part of our nation’s fiscal picture and vital to millions of elderly recipients. However, without reform, the Social Security Trust Funds will soon be depleted and unable to pay full benefits. According to CBO’s projections:

• The Old-Age and Survivors Insurance (OASI) Trust Fund, which provides benefits for retired workers and their families as well as deceased workers, will be depleted in 2033.
• The Disability Insurance (DI) Trust Fund, which provides benefits for disabled workers and their families, will be depleted in 2064.

If the two trust funds were hypothetically combined, they would be exhausted in 2034, at which point program benefits would be reduced by 23 percent. By comparison, the Social Security Trustees had a slightly more optimistic projection in their report released earlier this year, with the program’s trust funds facing depletion in 2035 and a 17 percent cut in benefits at that point.

The potential exhaustion of the program’s trust funds is due to the imbalance between the revenues dedicated to Social Security and the program’s scheduled benefit payments. If Social Security paid benefits as scheduled, spending on the program would rise from 5.1 percent of gross domestic product (GDP) in 2024 to 6.7 percent in 2098. Revenues, meanwhile, would remain around 4.5 percent of GDP over that period.

One of the key drivers of that mismatch between revenues and expenditures is the nation’s aging population and the corresponding decline in the ratio of workers to Social Security beneficiaries. Since 2010, about 10,000 baby boomers have turned 65 every day — meaning that the number of Social Security beneficiaries has climbed rapidly. In 2010, one year before the first baby boomers turned 65, there were 53 million Social Security beneficiaries; by 2031, the last year baby boomers will reach the full retirement age, there will be over 77 million beneficiaries, a 45 percent increase. Meanwhile, the number of covered workers paying into the program will only rise by 20 percent over that same period. As a result, the ratio of workers to Social Security beneficiaries will drop from 2.9 in 2010 to 2.5 in 2031.

While Social Security faces significant financial challenges, there are many options for reform available to place the program on sound financial footing. For example, policymakers could enact solutions to raise the retirement age, decrease the program’s benefits, increase the revenues dedicated to the program, or some combination of those actions. Several organizations have highlighted the potential cost savings from such reforms as part of the Peterson Foundation’s 2024 Solutions Initiative. Each of the seven policy organizations who participated in that initiative were able to make the program solvent through at least the next 30 years through a variety of reforms such as reducing benefits for high earners, modifying the amount of benefits received by certain beneficiaries, and increasing the income cap on payroll taxes. Regardless of the policies chosen, lawmakers need to enact reform soon to put Social Security on a sustainable fiscal path.

Related: Three Major Challenges To Retirement Security

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