After years of alarming headlines about the imminent insolvency of Social Security, Americans just got some good news. The agency's funds are now predicted to run out of money in 2035 — one year later than expected.
The update came in the latest annual report from the group of trustees tasked with monitoring the financial status of federal safety-net programs Social Security and Medicare. In the report, released Thursday, the trustees projected that the government will be able to pay out full Social Security benefits for longer due to the way the U.S. economy has bounced back from the pandemic.
“The economic recovery has been stronger than assumed in last year’s reports with faster-than-expected increases in employment, earnings, and GDP [gross domestic product],” the trustees wrote.
Social Security benefits, which aid more than 65 million Americans through monthly payments, are broken down into two key components: retirement benefits and disability benefits. Retirement funds are expected to run dry by 2034, a one-year improvement since the last report. Disability benefits are doing much better. They are expected to fully pay out for the next 75 years at least.
Combined, the Social Security coffers would last until 2035.
The report also showed that hospital benefits through Medicare — aka Part A — are slated to pay up until 2028, two years later than the previous estimate. (The medical insurance portion of Medicare is financed indefinitely because its funding is pulled from premiums and other tax revenues.)
Social Security is not going away — but it might change
On the whole, the report was a marked improvement from last year’s bleak projections. The trustees attributed much of the gains to a rapidly improving labor market. The idea is that when more people are working and seeing wage gains, it translates into more tax revenue to fund these vital programs.
However, several of them are still on precarious financial footing. In the coming years, these programs face major challenges because more baby boomers will retire, drastically shifting the ratio of workers to beneficiaries. At the same time, lower birth rates mean there will be a smaller supply of workers and thus less tax revenue to fund the programs.
When the funds are depleted, benefits will be cut. Come 2034, the year retirement funds are expected to run dry, the Social Security Administration will only be able to pay out 77% of benefits to retirees.
Already, this is reshaping how retirement savers feel about their golden years. According to a recent survey from investment firm Principal, 64% of workers are concerned that Social Security benefits won’t be available to them throughout retirement, and some 80% expect they’ll need to continue working to make ends meet.
Current retirees are also getting hammered by inflation. The Senior Citizens League, a non-profit advocacy group, predicts that Social Security beneficiaries will receive an 8.6% cost-of-living adjustment in 2023, but even that won’t offset the surging prices retirees face. Despite nominal increases each year, the buying power of Social Security checks has diminished 40% since 2000, TSCL found.
Congress could act to address these funding shortfalls before the programs are insolvent. Still, experts say retirees likely can’t and shouldn’t rely solely on the prospect of receiving Social Security benefits. Instead, Americans should start saving as early as possible through employee-sponsored 401(k) plans and/or individual retirement accounts.