For a long time, the Social Security Trustees have been warning that the retirement benefits system is facing some future financial hardships.
Specifically, Social Security is paying out more than it's collecting and making up the difference from its trust fund. This can't last forever, and at some point, the fund is going to run dry. That would mean Social Security would be able to rely only on revenue it's currently collecting. Since that's not enough to pay everything promised, this would necessitate a benefit cut.
The most recent Trustees Report reaffirmed the fact that future cuts are a possibility. But it also contained some good news for retirees. Here's why.
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Benefit cuts may not happen as soon, or be as substantial, as expected
According to the 2024 Social Security Trustees Report, the trust fund supporting Social Security retirement benefits (The Old-Age and Survivors Insurance (OASI) Fund) is expected to be able to continue paying full benefits until 2033, at which time a 21% benefits cut would go into effect if nothing changed. The Disability Insurance (DI) Trust Fund is expected to be solvent until at least 2098.
However, if the retirement benefits fund did run dry, a law change could result in the two funds combining. Because of the possibility the trust funds could merge, the trustees share data on when the combined fund would run dry. Looking at the combined funds together is very common when assessing the stability of Social Security in the future.
Here's where the good news comes in.
The 2023 Trustees Report suggested the combined trust fund would be able to pay full benefits until 2034. But this year's report shows there's enough money to pay full benefits until 2035. This means the Trustees project that the program will be fully solvent for a whole year longer. Not only that, but if cuts did go into effect, the income coming into Social Security from the combined programs would still be enough to pay 83% of promised benefits, up from the 80% projected in 2023.
This means things are actually trending in a positive direction. Stronger-than-expected economic growth led to improved labor productivity and lower projections for long-term disability insurance payouts. These factors could end up improving Social Security's long-term stability. Retirees get another year's reprieve until benefit cuts happen, or until Congress is forced to act. And, if benefit cuts do happen, they'll be smaller than anticipated.
Are benefit cuts really something to worry about?
While another year of solvency is obviously a good thing, current and future retirees still have reason to be concerned about what might happen in 2035. If Congress doesn't take action, a benefit cut of around 17% would be very hard for many seniors to bear.
The reality, though, is that lawmakers are extremely unlikely to allow one of the country's most popular entitlement programs to slash benefits and leave seniors (a powerful voting group) in the lurch. When Social Security faced a similar funding crisis in the past, lawmakers passed amendments in 1982 that went into effect in 1983 and that have done a decent job of protecting seniors in the intervening decades.
However, the issue is that those amendments included a change to full retirement age, which is the age when seniors can claim a standard unreduced benefit. They also imposed a tax on some Social Security benefits for higher earners. So, retirees did take a hit. And it's entirely possible that future efforts to shore up the program could result in similar changes in the future.
Still, seniors should be happy to hear that the Social Security program is good for a year longer than expected. Hopefully, this is a positive sign that continued economic growth could help stave off disaster -- and give Congress more time to come up with common-sense solutions that don't force seniors to work into their 70s just to get an unreduced Social Security check.
