With financial pressures mounting, Social Security’s combined trust fund is projected to run out in 2035, unless policymakers act to balance the program’s costs and revenues.
If the trust fund is depleted, Social Security won’t be able to pay all benefits scheduled under current law, a disastrous outcome for the 81 million retirees, people with disabilities, and their families projected to collect Social Security in 2035.
Our new projections show that allowing the trust fund to run out would increase the number of Social Security beneficiaries who live in poverty by more than 50 percent. Poverty rates would increase more for Black and Hispanic people than for white people, for whom Social Security makes up a smaller share of income.
Few Social Security policy experts expect Congress will allow the trust fund to be depleted and trigger sharp benefit reductions. Nonetheless, our estimates show what’s at stake if Congress fails to act.
A financial crisis for Social Security is looming
Social Security, the nation’s largest federal program, provides crucial financial support to retirees, people with disabilities, and their spouses, dependents, and survivors. In January 2024, the program paid monthly benefits worth $119 billion to 67.2 million people. Social Security benefits account for about half of all income received by households headed by adults ages 62 and older (PDF), including about two-thirds of income received by those in the bottom half of the income distribution.
The program is now running out of money. Social Security’s benefit payments have exceeded program revenue each year since 2021, and the annual shortfall is projected to reach $100 billion this year. The program has been able to plug the hole in its budget by dipping into the trust fund that accumulated over the past four decades, when payroll tax revenue from tens of millions of employed baby boomers dwarfed benefits paid to retirees.
But the program is falling out of balance as growth in the workforce slows and more boomers collect benefits. By 2033, only 2.4 workers are projected to contribute to Social Security per beneficiary, down from 3.4 in 2000. That would raise the projected annual shortfall to $332 billion if policymakers keep current benefit rules and revenue streams intact. By 2035, the combined retirement and disability trust fund for Social Security will be depleted, according to the intermediate projections from the program’s trustees.
How would trust fund depletion affect beneficiaries’ incomes?
Federal law prohibits Social Security from paying benefits exceeding its available funds. Even if the trust fund runs out in 2035, the program will continue collecting more than $1.6 trillion each year in payroll tax contributions from workers and income taxes on Social Security benefits. However, the trustees project that Social Security would only be able to pay 83 percent of scheduled benefits in 2035, and that share would eventually shrink to 73 percent.
Social Security has never lacked the funds needed to pay scheduled benefits in its nearly 90-year history, so it’s unclear how the Social Security Administration would allocate available funds in the event of a shortfall. It’s possible that it would allocate available funds proportionately, applying the same percent reduction to all beneficiaries.
Using Urban’s unique forecasting tool, the Dynamic Simulation of Income Model 4, we project the impact of trust fund depletion assuming an equal, across-the-board percent reduction in benefits. Our estimates show that if Congress fails to increase Social Security revenues, median annual benefits would fall $5,900 (measured in 2022 inflation-adjusted dollars) in 2045, relative to benefits scheduled under current law.
Median per capita annual incomes for adults ages 62 and older and people collecting Social Security disability benefits would fall 14 percent overall in 2045. Reductions would be larger among people with low incomes, for whom Social Security makes up a disproportionate share of their incomes. Depleting the Social Security trust funds would reduce income by 18 percent for those in the bottom fifth of the income distribution, compared with 5 percent for those in the top fifth.
How would trust fund depletion affect poverty rates?
Because of the disproportionate impact on people with low incomes, the number of people collecting Social Security who live in poverty would surge if the trust fund ran out.
According to our projections, an additional 3.8 million people ages 62 and older or collecting Social Security disability benefits would experience poverty in 2045, an increase of 55 percent. People of color would be hit particularly hard. Poverty rates would increase 6 percentage points for Black and Hispanic older people and those collecting disability but would increase by only 3 percentage points for their white counterparts.
Policymakers should act now to bolster Social Security’s finances
Congress can close Social Security’s financing gap and prevent the trust fund from running out by raising program revenues, cutting benefits, or combining more-modest revenue enhancements with more-moderate benefit cuts. Alternatively, Congress could allow Social Security benefits to be paid from general revenues, as it has for Medicare.
Many Democratic proposals, including one put forth by President Biden during his 2020 campaign, would lift the cap on the amount of earnings subject to Social Security’s payroll tax each year. Social Security’s actuaries project that raising the payroll tax cap would substantially extend the life of the trust fund but would not eliminate the program’s 75-year deficit. Other common proposals include increasing the Social Security payroll tax paid by employees and employers and taxing other income, such as investment income.
Benefit cuts that are often proposed to fix Social Security’s finances, mostly by Republicans, include raising the age at which people can collect full benefits, reducing benefits for higher-income people (PDF), and trimming annual cost-of-living adjustments. Some of these benefit cuts could raise poverty rates among people collecting Social Security, but policymakers could provide some protection by expanding Supplemental Security Income, a cash benefit for older adults and people with disabilities with little income and wealth.
Whichever path Congress chooses, it should act soon. Each year that policymakers delay contribution hikes or benefit cuts adds another generation that’s insulated from these changes because retirees do not pay payroll taxes, and nearly all proposals would exempt people in or near retirement from any benefit reductions. Delaying changes also reduces the time workers can prepare for any benefit reductions.
By acting now, policymakers can spread the costs of fixing Social Security over more generations, give workers more time to plan for retirement, and restore confidence in the program.
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