The combined reserves of the Social Security trust funds are expected to be depleted in 2034, the same time frame projected last year, according to the latest annual report from the Social Security and Medicare Board of Trustees released Tuesday.
If Congress fails to enact needed Social Security reforms before then, there would be sufficient funds to pay just 79% of promised benefits in 2034, slightly better than the 77% of benefits projected in last year's report.
Despite the projected depletion of the trust funds in 2034, the hypothetical combined reserves of the Old Age and Survivors Insurance and Disability Insurance trust funds grew by $44 billion in 2017 to a total of $2.89 trillion (In reality, the OASI and DI insurance programs are separate entities, but they are combined for annual report purposes.)
But that may be the last year of growth for the foreseeable future. The total annual cost of the OASDI program is projected to exceed total annual income in 2018 for the first time since 1982 and to remain higher throughout the 75-year projection period. As a result, asset reserves are expected to decline this year.
When considered separately, the OASI trust fund is slightly worse off and the DI trust fund's outlook has improved since last year's report. The OASI trust fund is now expected to be depleted in late 2034 compared to last year's estimate of early 2035.
The DI trust fund, on the other hand, is projected to be exhausted in 2032, extended from last year's estimate of 2028. A 2015 budget agreement extended the solvency of the Social Security Disability Insurance trust fund by temporarily allocating a larger share of the payroll tax to fund the disability program, which was in danger of imminent depletion.
Last year, total program income — which includes payroll taxes, taxation of Social Security benefits and interest earnings — amounted to $997 billion, exceeding total expenditures of $952 billion. But when interest income is excluded from the equation, program costs exceed income throughout the 75-year projection period.
During 2017, 174 million people had earnings covered by Social Security and paid payroll taxes. During the same period, about 62 million people received benefits, including retired and disabled workers, their eligible family members and survivors of deceased workers.
Treasury Secretary Steven Mnuchin said the latest report shows that Social Security and Medicare remain secure, but long-term problems persist.
"Lackluster economic growth in previous years, coupled with an aging population, has contributed to the projected shortages for both Social Security and Medicare," Mr. Mnuchin said in a statement following the release of the trustees' report. "The Administration's economic agenda — tax cuts, regulatory reform, and improved trade agreements — will generate the long-term growth needed to help secure these programs and lead them to a more stable path."
Nancy Berryhill, the acting commissioner of the Social Security Administration, acknowledged that while the projected depletion date of the combined Social Security Trust Funds has not changed, "The fact remains that Congress can keep Social Security strong by taking action to ensure the future of the program."
Most Social Security reform proposals call for a combination of increasing payroll taxes and cutting benefits, including recommendations to raise the full retirement age or scale back on inflation protections.
"The continued delay in enacting legislative repairs renders effective solutions more elusive and poses particular risks to economically vulnerable populations," Charles Blahous and Robert Reischauer, both former public trustees of the Social Security and Medicare Trust Funds, wrote in a joint report published by the Bipartisan Policy Center in advance of the trustees report.
"The historical reluctance of lawmakers to reduce benefits for current beneficiaries means that each successive year of delay excludes another large cohort of baby boomer retirees from contributing to the solution, thereby reducing the numbers of those among whom the burden of balancing system finances must be spread," the two former trustees warned.
Rather than cutting benefits, the Democratic-leaning Social Security Works coalition supports expanding benefits as a solution to the nation's looming retirement crisis by asking the wealthy to contribute more.
"With modest legislated increases in revenue, Social Security will be able to pay all scheduled benefits for the foreseeable future," the nonprofit organization said in a background report issued in advance of the trustees' report.
Medicare has two trust funds: the Hospital Insurance Trust Fund and the Supplementary Medical Insurance Trust Fund. The trustees project that the HI Trust Fund will be able to pay full scheduled benefits only until 2026, which is three years earlier than projected in last year's report. After the trust fund is depleted in 2026, the share of scheduled benefits that can be paid from dedicated revenues is 91% for the remainder of 2026, declining slowly to 78% by 2039.
The SMI Trust Fund, which covers Medicare Part B and Medicare Part D, remains adequately financed into the future due to financing from general revenues and beneficiary premiums. The aging population and rising health care costs will drive a steady rise in the costs of the programs, from 2.1% of gross domestic product in 2017 to 3.6% in 2037, and then increase more slowly to 3.9% of GDP by 2092.
Three-quarters of these costs will be financed from general revenues while the remaining will be financed from premiums paid by beneficiaries. That means higher-income retirees will continue to be responsible for a larger share of Medicare costs through monthly premium surcharges.