Social Security benefits are now projected to be fully paid out until 2033, one year earlier than previously estimated, according to a Treasury Department report on Friday.
The earlier insolvency expectation is due to lower Gross Domestic Product (GDP) and labor productivity estimates, according to the 2023 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds. In 2033, the Old-Age and Survivors Insurance (OASI) Trust Fund’s reserves are projected to be drained and continuing program income will be able to pay out 77% of scheduled coverage, according to the report.
Decreased birth rates in recent decades coupled with large numbers of retiring baby boomers have posed challenges to the long-term solvency of Social Security, according to The Wall Street Journal. In 2022, Social Security accounted for over 20% of federal expenditures, making it the largest program in the U.S. budget, according to the Congressional Budget Office.
US President Joe Biden gives a thumbs up while boarding Air Force One at Tampa International Airport in Tampa, Florida, on February 9, 2023. – Biden travelled to Tampa to speak about his plan to protect and strengthen Social Security and Medicare, as well as lower healthcare costs. (Photo by MANDEL NGAN/AFP via Getty Images)
The Trustees made this adjustment as they reexamined their predictions for the economy based on recent developments, such as updated inflation data and U.S. economic output, according to the report. Inflation has been persistently high and Americans began to cut back their spending in February, according to the United States Census Bureau. (RELATED: ‘No Sign Of Falling’: Obama Economist Sounds Alarm On Stubborn Inflation)
The Federal Reserve hiked interest rates by a quarter of a percentage point to a range between 4.75% and 5% on March 22. It was the ninth in a series that started in March 2022 to bring down inflation, and the rate levels are the highest since 2007.
GDP was revised to 2.6% on Thursday for the fourth quarter of 2022, according to the Bureau of Economic Analysis. This was a drop from 2.9.
The Treasury Department recommended in the report that Congress think about options for decisions they can make to prevent Social Security from insolvency.
These options include raising payroll taxes on people who are currently working, cutting Social Security benefits for retirees, or a combination of both, according to NPR.
“With each year that lawmakers do not act, the public has less time to prepare for the changes,” the report stated.
The Hospital Insurance fund is projected to be able to fully cover scheduled benefits until 2031, three years later than estimated last year, according to the report. Then program income will be able to cover 89% of total scheduled benefits.
The Disability Insurance fund is expected to be able to cover all scheduled benefits through at least 2097, the last year of the report’s projection period, according to the report.
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