SOCIAL SECURITY

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A new report indicates that the Social Security program is expected to run out of money by 2033 due to slower-than-predicted economic growth.

A Social Security and Medicare Trustees report released March 31 found the entitlement program could face insolvency a year earlier than previously reported, in part, due to a revision of gross domestic product and labor productivity over the coming years. Those benefits, which go to retired workers by in large, impact about 50 million people per month, with recipients getting an average payment of about $1,800, according to the Social Security Administration.

It added that if no significant changes are made before 2034 to shore up its funds, around 66 million Americans could see a benefit reduction between 23 percent and 25 percent.

“The combined trust funds will be insolvent by 2034, when today’s 56-year-olds reach the full retirement age and today’s youngest retirees turn 73,” the Committee for a Responsible Federal Budget (CRFB) said in an analysis. “Upon insolvency, all beneficiaries will face a 20 percent across-the-board benefit cut.”

The group added that the “Social Security program is only 11 years from insolvency, with insolvency of the old-age program only a decade away” and warned that “action must be taken soon to prevent an across-the-board benefit cut for many current and future beneficiaries.”

And if no action is taken, “all retirees regardless of age, income, or need will face a 20 percent across-the-board benefit cut, which will grow to 26 percent by the end of the 75-year projection window” upon insolvency of the program, the group added.

For years, insolvency has been hovering over Social Security. But some experts have said that recent reports should be no cause for alarm.

“First of all, a year’s worth of fluctuation in the reserve depletion date is not a cause for alarm,” wrote Kathleen Romig, the director of Social Security and disability policy at the Center on Budget and Policy Priorities, on Twitter. She noted that trustees have forecast an insolvency date between 2033 and 2035 for years.

The U.S. Treasury Department and its secretary, Janet Yellen, were among those sounding the alarm about depleted funds, releasing a statement that the trust fund’s “reserves will fall below 20 percent of annual cost by the beginning of calendar year 2033 and will become depleted in 2033 in the absence of legislation to address this imbalance between scheduled benefits and revenue.”,

“Social Security will continue to play a critical role in the lives of 67 million beneficiaries and 180 million workers and their families during 2023. With informed discussion, creative thinking, and timely legislative action, Social Security can continue to protect future generations,” Social Security Administration acting commissioner Kilolo Kijazaki added in a statement.

What Happens When 2033 Approaches?
The closer it gets to 2033, the less likely there will be benefit cuts, according to analysts. Benefit reductions typically are phased in slowly for future beneficiaries, so the impact of any cuts would not be adequate to achieve solvency.

“We’ve delayed so long that there are no plausible benefit reductions that can keep the trust fund from running dry in the 2030s,” said Andrew Biggs, a senior fellow at the American Enterprise Institute.

At the point of a 2033 crisis, an emergency injection of new revenue is most likely, said Paul Van de Water, senior fellow at the Center on Budget and Policy Priorities. “Congress could allow the program to continue running deficits by changing the law to credit Social Security with additional income—in effect, it would be financing the program through borrowing.”

That solution would avert the sharp benefit cuts, but it would further fuel public worries about Social Security. A 2020 AARP poll found that 57 percent of respondents are not confident about the future of Social Security, citing a lack of trust in government to keep its promises and that “money is running out.”