2024 Update on Social Security
Last week, the Social Security Trustees published their annual report, projecting the program’s financial status for the next 75 years. Established under the Social Security Act of 1935 as part of President Franklin D. Roosevelt’s New Deal, the program initially provided income to retired workers aged 65 and older. Over time, it has expanded to include disability insurance, survivor benefits, and Supplemental Security Income (SSI), serving as a crucial lifeline for millions of Americans. However, recent projections show that Social Security is approaching insolvency, highlighting the need for immediate reforms.
Asset Reserves of the Combined OASI and DI Trust Funds
Social Security’s asset reserves, comprising the Old-Age and Survivors Insurance Trust Fund (OASI) established in 1937 and the Disability Insurance Trust Fund (DI) initiated in 1957, represent the accumulated surpluses from total annual income over costs. Social Security began collecting taxes and making one-time lump sum payments in January 1937, but regular monthly benefits did not start until January 1940. Historically, these asset reserves grew as revenues consistently exceeded expenditures. However, the peak of $2.9 trillion in 2020 marked a turning point, with projections indicating a steady decline in reserves. The OASI fund is expected to be depleted by 2033, and the combined trust funds, including the DI fund, are anticipated to become insolvent by 2035.
Social Security Revenue and Benefits
The combined Social Security Trust Funds (OASI and DI) are projected to be depleted by 2035, indicating the need for reforms. By that time, available funds will only cover approximately 83% of the promised benefits. It's crucial to note that these two funds cannot be merged without new legislation. Nevertheless, their combined financial forecasts are commonly used to assess the overall health of the Social Security program. Currently, the DI fund is stable, with projections suggesting it can fulfill its obligations at least until 2098. However, if the DI fund is not taken into account, the OASI fund alone would be exhausted by 2033, resulting in subsequent income covering only 79% of the scheduled benefits. To ensure solvency over the next 75 years, the Trustees estimate that either a 21% reduction in benefits or a 27% increase in payroll taxes (equivalent to a 3.3 percentage point rise) will be necessary.
Worker-To-Beneficiary Ratio
One of the primary reasons the Social Security program is on a path towards insolvency is the slower growth of workers contributing to the system compared to the faster increase in beneficiaries receiving payments—a trend expected to worsen. A higher worker-to-beneficiary ratio signifies a more sustainable system, whereas a lower ratio indicates financial strain. In 1945, there were 41.9 workers per beneficiary. This ratio declined to 16.5 by 1950 and further to 8.6 in 1955, stabilizing between 3 and 3.5 from 1975 to 2005. However, from 2005 to 2023, the ratio decreased from 3.3 to 2.7, with projections suggesting a drop to 2.1 by 2100. Several significant contributing factors include declining fertility rates, an aging population, and slower rates of immigration.
