With approximately 94% of American workers covered by Social Security and 65 million people currently receiving benefits, a healthy Social Security cycle is a major concern.
Social Security is financed mainly through payroll taxes. Therefore, Social Security is not in danger of going broke but its financial health is declining. We are now at a point where the benefits may reduce unless congress acts.
The United States of America’s Social Security program consists of two programs, each with its own financial account (trust fund) that holds the payroll taxes that are collected to pay Social Security benefits:
- Retired workers, their families, and survivors of workers receive monthly benefits under the Old-Age and Survivors Insurance (OASI) program.
- Disabled workers and their families receive monthly benefits under the Disability Insurance (DI) program.
Other income such as reimbursements from the General Fund of the U.S. Treasury and income tax revenue from benefit taxation are also deposited in these accounts.
Money that’s not needed in the current year to pay benefits and administrative costs is invested (by law) in special government-guaranteed Treasury bonds that earn interest. Over time, the Social Security Trust
Funds have built up reserves that can be used to cover benefit obligations if payroll tax income is insufficient to pay full benefits. The bad news: these reserves are now being drawn down due to the aging population
and other demographic factors. Contributions from workers are no longer enough to fund current benefits.
According to Trustees, Social Security will have the funds to pay full retirement and survivor benefits until 2034. After that point, reserves will be used up and payroll tax revenue alone would be enough to pay only 77% of scheduled OASI benefits, declining to 72% through 2096, the end of the 75-year, long-range projection period.
The Disability Insurance Trust Fund is projected to be much healthier over the long term. The Trustees now estimate that it will be able to pay full benefits through the end of 2096. Applications for disability benefits have been declining substantially since 2010, and the number of workers receiving disability benefits has been falling since 2014, a trend that continues to affect the long-term outlook.
According to the Trustees report, the combined reserves (OASDI) will be able to pay scheduled benefits until 2035, one year later than in last year’s report. After that, payroll tax revenue alone should be sufficient
to pay 80% of scheduled benefits, declining to 74% by 2096. OASDI projections are hypothetical, because the OASI and DI Trust Funds are separate, and generally one program’s taxes and reserves cannot be
used to fund the other program. Combining these trust funds in the 2022 Trustees report is a way to illustrate the financial outlook for Social Security as a whole.
View a copy of the 2022 Trustees report at ssa.gov.