Social Security benefits report confirms major changes are coming

Legislative intervention is required to avoid reduced benefits, but there are many options.

May 15, 2024 - 18:30

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Social Security benefits report confirms major changes are coming

A report recently released by the Social Security and Medicare Boards of Trustees confirmed last year's findings that a key trust fund will be exhausted in 2033.

But that doesn't mean reductions in benefits are inevitable. In fact, Secretary of the Treasury Janet Yellen and other officials emphasized that point in a message to the public associated with the report.

"Lawmakers have many options for changes that would reduce or eliminate the long-term financing shortfalls," the officials wrote. "Taking action sooner rather than later will allow consideration of a broader range of solutions and provide more time to phase in changes so that the public has adequate time to prepare."

For clarification, according to the Social Security Administration, solvency refers to the ability of the trust funds to pay 100 percent of currently scheduled benefits.

One of the funds, the Old-Age and Survivors Insurance (OASI) trust fund, will run out in 2033.

However, there are two major reasons not to panic. The first involves the point Yellen and the other officials made: There are changes to the system that lawmakers can make to resolve the situation.

Second, it's important to note that exhausting the trust fund does not equal the end of Social Security benefits. Continued funding from payroll taxes, the trustees estimated, would still be able to pay for 79% of scheduled benefits.

And, of course, there are other considerations as well.

For Social Security, there is time to avoid benefits reductions

One possible short-term fix, which would require a change in the law, would be to combine the OASI with the Disability Insurance (DI) trust fund.

Combining OASI and DI projections (referred to as OASDI) — according to the trustees' estimates — would result in the ability to pay all scheduled benefits until 2035 (one year beyond estimates from last year's report). After that, 83% of the benefits could be paid through continuing income.

Labor data played a role in the longevity projections of the OASDI fund.

"The trustees noted that the long-term finances of the combined OASDI fund improved this year thanks to an upward revision to labor productivity (due to stronger-than-expected economic growth in 2023) and a lower assumed long-term disability incidence rate," wrote Kitces.com on May 10. "(T)hough these were partially offset by a decrease in the assumed long-term total fertility rate (which would lead to fewer workers paying into the Social Security system)."

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A Social Security Administration office is seen. Efforts are being examined to insure the solvency of Social Security benefits.
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Many potential actions to shore up Social Security are proposed

Those factors, however, are only relevant for about the next decade. Other longer-term solutions are possible, with legislative intervention.

These include a payroll tax increase, raising the retirement age and changing how benefits are calculated.

More on money and finances:

A useful Social Security Administration report, titled "Summary of Provisions That Would Change the Social Security Program," contains summaries of possible actions that could be taken, along with resulting financial effects.

"Many policymakers have developed proposals and options to address this long-range shortfall," the summary states. "This booklet provides a broad range of policy options that address trust fund solvency and other issues related to Social Security benefits and financing. Many of these individual provisions were a part of comprehensive proposals intended to restore trust fund solvency."