By 2043, the Social Security trust fund will be exhausted, according to a new study from the Congressional Budget Office.
After that date, the Social Security agency would have to reduce benefits to all beneficiaries to a level dependent on how much it takes in every year.
By 2043, revenues would equal only 83% of scheduled outlays for Social Security, meaning that payable benefits would have to decline 17% from scheduled benefits.
The gap between scheduled and payable benefits would begin to widen in about 2055, and by 2083, payable benefits would be 21% smaller than scheduled benefits, the report projects.
One factor that would contribute to the decline in the program’s income is that a growing share of compensation would be paid in the form of nontaxable health benefits, the CBO report says.
Currently, the trust fund is taking in more than it pays out. Total outlays equaled 4.4% of gross domestic product in 2008, while income equaled 4.8% of GDP, the CBO says.
As baby boomers age, the number of Social Security beneficiaries will grow considerably, the report points out.
Without legislative changes, spending for the program will grow to 6.1% of GDP in 2033.
Over the following 20 years, scheduled spending will decline slightly relative to the size of the economy, to about 5.7% of GDP, as baby boomers die.
However, demographers generally expect life expectancy to continue rising and birth rates to remain at current levels, the report said. As a result, scheduled Social Security outlays are projected to resume their upward trajectory after 2054, reaching 6.2% of GDP in 2083.
The current recession is resulting in lower earnings for workers and therefore in lower-than-expected Social Security revenues, but it is not having as large an effect on benefit payments.
Consequently, for the next few years, surpluses in the Social Security trust funds will be noticeably smaller or deficits larger than they would have been if economic growth had remained steady.
In the long term, the recession would have little effect on revenues and outlays as a percentage of GDP, but the trust funds’ balances would be permanently lower, the report added.