Five Facts on the Social Security Trust Fund
The Big Insight: The Social Security trust fund is on track to run out of money by 2034, and significant bipartisan action will be needed to secure it.
The Social Security trust fund is running out of money, but it has been decades since Congress passed legislation making reforms to the program. Tens of millions of Americans rely on Social Security for their survival, and it keeps many — not just retirees — above the poverty line. Congress needs to focus on this emerging crisis, and it will take work across the aisle to keep the program afloat.
Here are five facts on the Social Security trust fund.
1. The Social Security trust fund is projected to be depleted within the next 12 years.
Social Security’s financial operations are actually two legally distinct trust funds, the Old-Age and Survivors Insurance trust fund and the Disability Insurance trust fund. They are usually referred to collectively as “the Social Security trust fund.”
The trust funds had $2.85 trillion in reserves at the end of 2021. These funds will run out of money by 2034, according to the most recent official estimate. As recently as 2019, the funds were expected to last until 2044, but the COVID pandemic resulted in a significant reassessment.
2. Once the trust fund is depleted, all benefit payouts will be immediately cut by at least 22%.
With the fund empty, Social Security is projected to be able to continue to pay out 78% of promised benefits. Alicia H. Munnell of the Center of Retirement Research at Boston College told CNBC earlier this year, “No major Social Security legislation has been passed at all since the early 1980s. And so we do have this event coming up that forces Congress either to do something, or most people’s benefits are going to be cut by [nearly] 25%.”
3. Social Security provides at least 90% of total retirement income for more than one in eight older Americans.
Social Security provides more than half of total retirement income for about two out of five retirees — more than 20 million people. The average benefit is about $19,370 per year — which would be reduced by more than $4,200 per year if the trust fund runs out.
In addition, nearly 2.8 million children receive Social Security benefits as dependents of retired, disabled, or deceased workers — and in 2019, the benefits raised more than one million of them above the poverty line.
4. In 2021, the cost of the Social Security program exceeded its total income for the first time ever.
The cost of the program exceeded total income, including interest on reserves, by $56 billion. The Social Security Trustees expect total cost to exceed income in all future years.
5. Social Security is funded by a 6.2% tax on wages and a parallel 6.2% tax on employers.
The maximum amount of income subject to Social Security tax in 2021 was $142,800, up $5,100 from one year earlier. By comparison, in 2000 the cap was about $120,000 in 2021 dollars. Last year, $980 billion of total Social Security funding came from payroll taxes.
As life expectancy has increased, the baseline retirement age for full Social Security benefits has been raised. When the program was created in 1935, average U.S. life expectancy was just 62 years; it is now about 79 years. Princeton emeritus professor of politics R. Douglas Arnold says raising the Social Security retirement age one year — from 67 to 68 — would close one-seventh of the program’s deficit. He also says an increase in the wage tax to 8.1% would secure the program through 2095. Eric Kingson of Syracuse University suggests keeping the rate at 6.2%, but eliminating the cap — which would address as much as two-thirds of the projected shortfall.
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