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Social Security Fund on Track to Go Bust by 2033: Trustees Report

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The Social Security Old-Age and Survivors Insurance Trust Fund is on track to be depleted by 2033, a year earlier than estimated in 2020, with 76% of benefits payable at that time, according to the just-released 2021 Social Security Board of Trustees’ report, which typically is released in April.

The Disability Insurance Trust Fund, meanwhile, is projected to be able to pay scheduled benefits until 2057, eight years earlier than last year’s projection. At that time, the report states, the fund’s reserves will be depleted and continuing tax income will be able to pay 91% of scheduled benefits.

Despite the Social Security’s trust fund reserves at the end of 2020 being $2.9 trillion, having increased by $11 billion, there were a variety of factors driving the estimate, the Trustees state.

The report notes that both Social Security and Medicare will face long-term financing shortfalls under “currently scheduled benefits and financing.” Further, both will experience substantial cost growth into the 2030s due to “rapid population aging.”

The finances of both programs have been “significantly affected by the pandemic and the recession of 2020,” the report states. “Employment, earnings, interest rates, and GDP dropped substantially in the second calendar quarter of 2020 and are assumed to rise gradually thereafter toward full recovery by 2023, with level of worker productivity and thus GDP assumed to be permanently lowered by 1 percent even as they are projected to resume their pre-pandemic trajectories.”

The Trustees also noted that elevated mortality rates related to the pandemic through 2023, as well as reductions in immigration and childbearing in 2021-2022 from projected levels in the 2020 report, all affected the projections.

There is much uncertainty around the exact impact of the pandemic, the trustees state.

A recent report from the Social Security Administration stated that there were nearly 400,000 more beneficiary deaths in 2020 than in 2019, a 17% year-over-year increase.

The impact of these deaths remains to be seen on Social Security payments, both in distribution and in potential payroll tax revenue.

Indeed, Nancy J. Altman, president of the advocacy group Social Security Works, stated in an email that “the rule of thumb is that economic changes have the greatest impact on the next five or 10 years, with demographic changes primarily affecting the long term. Consequently, a temporary increase in deaths among beneficiaries should not change the long range outlook significantly.”

But this may not have been an issue, Altman said. “With respect to the FICA reduction, if that had not been paid back but instead had been made permanent, that would have had a substantial impact.  Because it is being paid and was temporary, though, that should not have an impact either.”

The Trustees mentioned lower payroll tax income and lower revenue from income taxation of benefits having some effect.

Last year, President Donald Trump issued an executive order signed Aug. 8 declaring all payroll tax obligations, which fund Social Security, would be deferred through the end of 2020. The action was intended to provide relief for taxpayers amid the COVID-19 pandemic. However, those tax funds had to be paid back by April 30, 2021.

The Trustees concluded that “lawmakers have many policy options that would reduce or eliminate the long-term financing shortfalls in Social Security and Medicare. Lawmakers should address these financial challenges as soon as possible. Taking action sooner rather than later will permit consideration of a broader range of solutions and provide more time to phase in changes so that the public has adequate time to prepare.”