The Social Security program will run out of money in calendar year 2029 and will not be able to pay full benefits after that, according to updated projections published Wednesday by the Congressional Budget Office.
The program consists of two trust funds, Old-Age and Survivors Insurance, and Disability Insurance. Of the 61 million people currently receiving benefits, 83% are retirees, dependents or survivors in the OASI program and 17% are disabled workers or dependents in the Disability Insurance program.
CBO projections incorporate the macroeconomic effects of fiscal policy through 2046. Unless changes are made, the DI trust fund will be exhausted in fiscal year 2022 and the OASI trust fund will be in 2030, bringing the combined trust fund balance to zero in calendar year 2029, CBO said.
Once the trust fund balances reach zero and current revenues do not cover benefits, “the Social Security Administration would no longer be permitted to pay full benefits when they were due,” and future outlays would be limited to annual revenues, the report said. In 2030, that means that benefits would have to be reduced by 29%.
In fiscal year 2016, the $905 billion spent on Social Security benefits accounted for nearly one-quarter of federal spending, with 84% in the OASI program. Without changes to scheduled benefit payments or laws governing taxes and spending, Social Security program outlays would rise from 5% of gross domestic product in 2016 to 5.9% in 2026 and 6.3% in 2046, and outlays would exceed tax revenues by 33% in 2026 and 42% in 2046, the report said.
Social Security is funded by dedicated tax revenues, with 96% coming from payroll taxes and 4% from taxes on Social Security benefits, which in fiscal year 2016 brought in a combined $859 billion.
The report is available on the CBO website.
Hazel Bradford is a reporter with InvestmentNews' sister publication, Pensions & Investments.