The Truth About The Future Of Social Security Just Got A Little Clearer

It's long been known that Social Security's trust fund is set to run out. However, the Social Security Administration's Board of Trustees found recently that this money will run out later than anticipated. The 2024 Trustees Report that found the trust funds helping to fund Social Security benefit payments are due to run out in 2035, an entire year later than the previous year's predictions. This is due to a number of different economic factors, including low unemployment numbers, which translated to more people contributing to Social Security through taxes.

Martin O'Malley, commissioner of Social Security, explained, "This year's report is a measure of good news for the millions of Americans who depend on Social Security, including the roughly 50% 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."

It's important to realize that Social Security won't simply cease to exist once the trust funds are depleted in 2035, but that it will no longer be able to pay out its full promised benefits. According to the 2024 report, Social Security would only be able to pay out roughly 83% of the full benefits promised to retirees after those trust funds run out. This means retirees would experience a cut in their monthly benefits amounts, which could be especially problematic for those on fixed budgets. Not to mention how this gap in Social Security could affect other generations like Gen X.

How Social Security funding works

Understanding the funding for Social Security's trust funds can be complicated. For starters, in 2023 Social Security had $1.35 trillion in income for its trust funds (with $1.233 trillion of it coming from payroll tax contributions, $51 billion from the taxation of Social Security benefits, and $67 billion in earned interest). However, total expenditures for the trust funds were $1.392 trillion. This means the 2023 projected deficit (over a 75-year-long period) is 3.5% of taxable payroll.

It's worth noting that Social Security's costs have exceeded its income since 2010, and that 2024 is projected to continue to exceed the program's annual income. This means that the reserves of the trust funds dedicated to both the Old-Age and Survivors Insurance (OASI) and Disability Insurance (DI) have to pay the difference. In 2023, that meant a decline of $41 billion. The current amount left in these funds is $2.78 trillion.

And so, if you're wondering how exactly these trust funds now have an additional year worth of funding, the answer involves numerous different factors. Martin O'Malley explained in the Trustees Report, "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." The combination of more people working in the U.S., combined with an increase in how much workers are paid (and therefore how much they're taxed) have combined to create this additional year in Social Security's projections.

The effort to extend Social Security

While the additional year of funding reported in the 2024 Trustees Report is a good thing, it's by no means a long-term fix for Social Security's funding issues. You might be wondering what needs to happen in order to ensure funding for the program extends past 2035, and the answer is Congress. As Martin O'Malley said in a press release, "Congress can and should take action to extend the financial health of the Trust Fund into the foreseeable future, just as it did in the past on a bipartisan basis."

He continued, "... I will continue to urge Congress to protect and support Social Security and restore the growth of the funds. Whether Congress chooses to eliminate the shortfall by increasing revenue, reducing benefits, or some combination, is a matter of political preference, not affordability." While it might sound simple enough to approve additional money for the program, the issue comes down to how, exactly, to fund it. Split along political lines, each party offers a vastly different version of how Social Security should operate in the future.

President Biden has very publicly defended Social Security, and promised to block any attempts to delay the retirement age or minimize payments for beneficiaries. The administration has focused on raising taxes on the wealthy to offset Social Security funding. On the flip side, the 2023 Republican Study Committee's proposal included benefit cuts, as well as postponing full retirement until age 69 (currently it's 66 for those born between 1943 to 1954, graduated if you were born between 1955 to 1960, and 67 for everyone born after 1960).