Five key questions about the dwindling Social Security trust fund

Concerns are rising over the future of Social Security as lawmakers on both sides discuss potential changes to extend the lifetime of the program, which risks running a shortfall in funds sooner than one might expect.

A report released by the Congressional Budget Office (CBO) warned the Social Security trust fund could run out of money by 2032 — a year earlier than previously thought — if Congress doesn’t make changes to bring in more revenue or reduce benefit payouts.

While the timeline isn’t set in stone, CBO Director Philip Swagel noted the new projection puts the exhaustion date within a 10-year window, the first time experts say that’s happened in decades.

Here’s five things to know about what that could mean. 

When would Social Security run out of money?  

While CBO projects the trust fund to reach insolvency in 2032, that estimate can move depending on factors like inflation or changes in the nation’s demographics.

Swagel said the nearly 9 percent cost-of-living adjustment (COLA) to Social Security payments this year pushed the program closer to insolvency.

“On the one hand, beneficiaries benefit from the COLA,” Swagel said during an event hosted by the Bipartisan Policy Center on Friday, but he added it’s also “a consequence of high inflation”

“I think we've learned as a nation that high inflation is very damaging,” he added. “In a sense, like a tsunami that affects the entire nation, and in a way that other negative economic effects don't.”

Experts have also pointed to other contributors to the insolvency threat, including the nation’s aging population and low birth rates. Social Security depends on a steady stream of payroll taxes from a growing workforce, but the ongoing retirements of Baby Boomers and high federal budget deficits have sapped the program’s trust fund.

How short will the Social Security trust fund be in 2032?

The cost of the program’s outgoing benefits surpassed the amount of funds going into its accounts in 2021 – which The Associated Press reported then was the first time such a happening occurred since the early 1980s.

Congress passed in 1981 a stop-gap funding bill that allowed for borrowing between the Medicare Trust Fund and Social Security’s two accounts: the Old-Age & Survivors Insurance Trust Fund (OASI), the larger of the two funds that cover retirement benefits, and the Disability Insurance (DI) Trust Fund.

The measure helped buy time for a larger deal signed into law by President Reagan to shore up Social Security involving tax hikes and benefit cuts.

“Congress phased most of the big tax increases and big benefit cuts into the far future but some of the tax increases took place right away without any delay,” said Gary Burtless, senior fellow in economic studies for the Brookings Institution.

What will this mean for beneficiaries?

Beneficiaries of Social Security are expected to face steep reductions in payments if the program becomes insolvent, with some projecting declines of up to 20 percent. 

“We haven't faced a situation of precisely what would happen, but there would be insufficient revenue to pay the full promised benefits on time,” Swagel said Friday.

Currently, beneficiaries are able to receive their full promised benefits, even as Swagel notes the program is currently paying out more cash than the revenue it receives, after building up its reserves in previous years.

According to the Social Security Administration, roughly 56 million people received benefits through the OASI, which pays out benefits for retirement and survivors, in late 2021. During the same period, there were also 9 million beneficiaries for the program’s smaller Disability Insurance (DI) Trust Fund. 

However, both accounts are usually considered as a combined fund when discussing the program’s solvency.

What is needed to make the fund solvent?

To extend solvency for Social Security, lawmakers have pointed to either a reduction in benefits or an increase in taxes. But there are fierce partisan divides over the details.

While Democrats have proposed raising the payroll tax for high earners, including households making $400,000 or more, Republicans have instead floated tightening eligibility requirements.

Recent polling from YouGov shows that most Americans, or 57 percent, say the program “should be given more funding,” by contrast. In the same poll, less than a fourth of Americans also said they wanted funding to remain the same, while only 11 percent said they wanted funding to be reduced.

What does this mean for the future of the program?

Lawmakers and experts have cast doubt on the chances the insolvency threat will reach the point where beneficiaries will be forced to suffer major cuts in benefits.

"It is woven into the American social fabric and a very important part of people's finances," Kathleen Romig, director of Social Security and Disability Policy at the Center on Budget and Policy Priorities, told The Hill, noting its a program that affects "people of every party."

Lawmakers are involved in bipartisan negotiations over proposals to extend Social Security’s solvency with the goal of making it through a divided Congress.

However, changes to the program are a tough lift, even in a Congress where one party holds the majority in both chambers. And some members aren’t holding their breath for a compromise anytime soon, particularly as the 2024 presidential campaign already begins to heat up.

“You got two years here that you’re going to have a presidential election,” Sen. Markwayne Mullin (R-Okla.) told The Hill this week. “And I imagine this will be brought up, because it always is.”

“And anytime it’s politicized, there isn’t going to be a solution,” he said, adding: “I’d hoped we’d set political differences aside and just find a solution to it, but we’ll probably wait until 2031 to actually get serious about fixing it.”