8 ‘Must-Know’ Facts About the Social Security Trustees Report

2. Big 2022 and 2023 cost-of-living adjustments have had a significant impact.

According to the panel, the big benefit cost-of-living adjustments seen in 2022 and 2023 have had a big impact on the Social Security program and its beneficiaries.

On the one hand, retirees facing significant inflation have seen their benefits boosted in a meaningful way. As Social Security benefits are already relatively modest, their purchasing power is particularly sensitive to periods of high inflation.

On the other hand, the COLAs in 2022 and 2023 were both about two times larger than the trustees had forecast, and this has had a direct impact on the solvency projection.

Simply put, today’s richer benefits shaved a full year off the retirement trust fund’s solvency, and it’s perfectly possible that large COLAs in the years ahead could cause even more strain.

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3. The fundamental solvency problem is demographic.

As highlighted repeatedly by Andrew Biggs at the American Enterprise Institute, the principal driving factor behind Social Security’s funding woes is simple demographics.

The system has shifted from having five workers per retiree in the 1960s to having just two workers per retiree today. While the figure will drift marginally up and down in the decades ahead, it is not expected to climb much higher than two workers per retiree.

Short of benefit adjustments, this implies a substantially higher payroll tax would be needed to keep the program fully funded.

According to Biggs, the growth of the real value of Social Security retirement benefits is another key factor. Because the benefit is indexed to inflation, it has grown substantially over the decades, reaching $43,000 per year for a single retiree in 2023.

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4. Social Security faces a far bigger funding challenge than it did in the 1980s.

According to the panel, people often look back to the last round of major Social Security reforms from the 1980s and assume a similar playbook could be followed this time around.

In reality, however, the funding problems the program is facing are much more serious now. In the 1980s, the panel explained, beneficiaries were facing a potential 4% benefit cut, and the possible tax increases being discussed were marginal.

Today, the cuts being contemplated are in excess of 20%. It will also be difficult to raise the retirement age, the panel agreed, since the full retirement age is already at 67 for those born after 1960.

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5. Benefit cuts are not a popular solution.

During the discussion, several members of the panel pointed to Pew survey research showing younger Americans are deeply skeptical about their chances of ever receiving full Social Security benefits when they retire.

Despite the bleak public perceptions about the future of Social Security, two-thirds of Americans say that benefit cuts should not be an option when thinking about Social Security’s long-term future, according to the Pew survey data.

When the majority who oppose benefits cuts is asked if the program should be expanded or kept as it is, most support the status quo. Specifically, nearly four in ten Americans say benefits should remain as they are, while roughly a quarter favor Social Security covering "more people with greater benefits."

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6. Medicare is in better shape now, but big problems are looming.

According to the experts, looking at Medicare’s financial statements helps to demonstrate just how difficult understanding cash flow, projecting future cash flow and saving for future retirement health care costs can be.

For now, the Medicare hospital insurance program is actually posting net asset gains — a sharp contrast to the retirement trust fund. But unless something changes, Medicare is on track to start posting big annual asset losses starting around 2027.

The panel suggested it may be easier for Congress to fix Medicare's funding position relative to Social Security, given that the former program's costs are paid by general revenues rather than payroll taxes.

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7. Even more dire predictions for Social Security solvency exist.

While the focus of the panel discussion was the new trustees report, Richard Frank from the USC-Brookings Schaeffer Initiative for Health Policy also repeatedly pointed to projections published by the Congressional Budget Office.

In a phrase, the CBO’s projections are even more dire than those made in the latest trustees report.

Specifically, the CBO’s projections posit that restoring solvency would require the equivalent of reducing projected benefits immediately and permanently by 26% or increasing dedicated taxes by 40%.

By 2096, according to the CBO, the retirement program’s cash shortfall will rise to 7.4% of taxable payroll, the equivalent of 2.5% of GDP. Shortfalls at this level would mean adjustments would need to grow to a 35% reduction of scheduled benefits or a 53% boost in revenues.

Also notable is the fact that the CBO projects an earlier 2031 insolvency date and a larger overall shortfall than the Social Security trustees.

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8. A mix of policy solutions will be needed to restore Social Security.

One piece of good news shared by the panel is that a wide range of workable policy solutions has been put forward by members of Congress.

On the revenue side, for example, lawmakers could make an upward adjustment of the $160,200 taxable wage maximum, and this step could close between 20% and 40% of the program’s funding gap in 2032, depending on the size of the adjustment.

Another revenue-focused solution would be expanding Social Security coverage (and the commensurate wage taxes) to all newly hired state and local government workers. This second move would close 5% of the 2032 gap, but it wouldn’t do much to address the longer-term funding woes, as benefits would eventually need to be paid to these workers.

On the benefit side, one suggestion is to replace the current dynamic benefit formula with a flat benefit set between 125% and 150% of the poverty line.

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