The future of Social Security is a topic of concern for voters as they head into the November election. According to the Congressional Budget Office (CBO), the trust fund for Social Security is projected to run out of money by 2034. This is due to benefits exceeding tax revenues. The latest report from the CBO estimates that the Old-Age and Survivors Insurance Trust Fund will be depleted in fiscal year 2033, one year later than previously projected. Additionally, the Disability Insurance Trust Fund could be exhausted by 2064.
The financial state of Social Security is deteriorating because the trust fund is paying out more than it takes in from payroll tax revenue. Over the next 75 years, Social Security’s actuarial deficit is expected to represent 1.5 percent of GDP or more than 4 percent of taxable payroll. This means that scheduled benefits in 2035 and 2098 could be 23 percent and 28 percent smaller, respectively.
One contributing factor to Social Security’s fiscal challenges is the growing population of seniors who are receiving more benefits than they are paying into the system. In 1960, there were 5.1 workers per beneficiary, but today, the ratio is 2.8 to 1. The CBO also notes that replacement rates will be higher for retired workers with lower incomes. Initial benefits for retired workers replace more than one-third of average preretirement earnings, with lower-income workers receiving a larger percentage of their average preretirement earnings.
Disabled workers also experience higher replacement rates compared to retired workers, as they tend to have lower overall earnings. On average, initial disability insurance benefits replace more than half of recent substantial earnings for disabled workers.
When considering the current scheduled-benefits scenario, retirees receive approximately one-eighth of their lifetime earnings in Social Security benefits, on average.
The state of Social Security and Medicare is a significant concern for voters. A CNBC poll shows that Social Security is one of the top issues determining who voters will support in November. A Nationwide Retirement Institute survey found that a White House contender’s position on Social Security reform is a significant factor in how people vote. Additionally, a Gallup survey found that 80 percent of adults under 65 are worried that Social Security will be unavailable when they are eligible to receive benefits, while 73 percent express concerns about Medicare accessibility.
The fiscal challenges facing Social Security and Medicare are well-documented. The U.S. House Budget Committee projected a potential 21 percent cut in Social Security benefits and an 11 percent decrease in Medicare Part A benefits in the coming decade.
In the 2024 presidential election race, former President Donald Trump pledged to eliminate taxes on Social Security benefits. However, economist Laurence Kotlikoff suggests that this proposal could worsen the situation. Kotlikoff argues that abolishing the tax would result in cutting trillions in Social Security revenue in a system that is already $63 trillion in debt.
The Committee to Unleash Prosperity calls taxes on Social Security benefits unfair and believes that eliminating them could be popular with voters over the age of 65. However, economists at the Peter G. Peterson Foundation propose various policy solutions to repair Social Security, including increasing payroll taxes, raising the retirement age, and adjusting benefits.
Ultimately, the future of Social Security remains uncertain. The Social Security Administration will announce final adjustments in early October, but estimates suggest that 2025 benefits could rise by 2.57 percent. It is essential for policymakers to find a fiscally sustainable solution that preserves the retirement system and strengthens support for those who need it the most while considering the limited ability of retirees and near-retirees to adjust to major financial disruptions.
