Social Security projected to run out of money to pay full benefits in 2033 and Medicare in 2036
Social Security and Medicare will not be able to fully pay benefits in just over a decade unless lawmakers address the pending shortfalls, according to reports released Monday by the programs’ trustees. Despite a slight improvement in the trust funds’ finances, they remain in critical condition.
The combined Social Security trust funds, which support monthly payments to the elderly, survivors, and people with disabilities, are expected to be depleted by 2035, a year later than previously forecast, according to the trustees’ annual report. After that, payroll tax revenue and other income sources will only cover 83% of the benefits owed.
Meanwhile, Medicare's financial condition has improved more significantly. It is expected to cover scheduled inpatient hospital benefits until 2036, five years later than last year's projection, according to its trustees.
The reports are likely to become a focal point in this year’s presidential campaign. Both President Joe Biden and his presumptive Republican rival, former President Donald Trump, have vowed to protect Social Security and Medicare, two popular but endangered entitlement programs.
Despite this reminder from the trustees, Congress is unlikely to address the controversial issue anytime soon, even as the growing programs add strain to the federal budget and contribute to rising deficits. However, experts warn that the longer lawmakers wait, the fewer options they will have.
Looking solely at the trust fund that covers retirement and survivor benefits, Social Security will only be able to afford full scheduled payments until 2033, roughly the same projection as last year. At that time, the fund’s reserves will be depleted, and continuing income will only cover 79% of the benefits owed.
The Disability Insurance Trust Fund is expected to cover full benefits at least through 2098, when the projection period ends. Merging the two trust funds would require an act of Congress, but the combined projection is often used to show the overall status of the entitlement.
About 67 million Americans received Social Security benefits in 2023.
As for Medicare, its hospital insurance trust fund, known as Medicare Part A, has a few more years before it runs dry. By 2036, Medicare will only be able to pay 89% of total scheduled Part A benefits, which also cover hospice care, short-term skilled nursing facility services, and home health services following hospitalizations.
Medicare covered 66.7 million senior citizens and people with disabilities in 2023.
Campaign Issue
The fate of Social Security and Medicare is once again a central issue in the presidential campaign.
Immediately after the trustees’ reports were released, Biden issued a statement highlighting the contrast between his plans for the entitlement programs and Republican efforts.
“Medicare is stronger and Social Security remains strong,” he said. “As long as I am President, I will keep strengthening Social Security and Medicare and protecting them from Republicans’ attempts to cut benefits Americans have earned.”
Biden has repeatedly criticized a budget proposal from a conservative House Republican group for containing benefit cuts and has criticized Trump for being open to reducing the two programs. Biden’s campaign referenced a CNBC interview Trump did in March, where he mentioned that there was much one could do regarding cutting entitlements.
Trump said he was referring to addressing theft and mismanagement of the programs and reiterated his promise to protect them. His campaign did not immediately release a statement on the trustees’ reports.
Neither Biden nor Trump has detailed proposals to address Social Security’s looming shortfall, though Biden has suggested increasing taxes on higher-income Americans to help shore up the program.
Biden has proposed a plan that he claims would solve Medicare’s financial issues by raising certain taxes on wealthier individuals and funneling some savings from the proposed Medicare drug reforms into the trust fund. Trump has not suggested a fix for Medicare.
Aging of America
Social Security and Medicare have long been on shaky financial ground, largely because the nation’s population is getting older and living longer. The number of beneficiaries is ballooning, but fewer workers are paying into the programs. Additionally, healthcare costs are rising.
Monthly Social Security checks are a lifeline for many retirees, representing about 30% of the income for people over age 65.
The projected finances of the combined Social Security trust funds improved mainly because the trustees are now forecasting a higher level of labor productivity, given that economic growth in 2023 was stronger than anticipated in last year’s report. They are also assuming a lower incidence rate for long-term disability benefits, which raises the projected employment rate for working-age Americans. However, these improvements are partially offset by lower fertility projections.
The forecast for Medicare’s hospital trust fund finances strengthened due to several factors, including a policy change correcting the way medical education expenses are accounted for in Medicare Advantage rates starting this year, higher payroll tax income from the stronger-than-expected economy, and lower-than-projected expenditures in 2023.