In the United States, during 2025, Social Security will have to deal with a significant problem, according to the annual report of the trustees. The situation is that the Old Age and Survivors Insurance (OASI) fund will not be sufficient by 2033 if the US Congress does not take action. This would mean cuts of up to 20% in Social Security payments to beneficiaries. Retirees and people with disabilities, among others, would be affected by Social Security. Although the Disability Insurance Trust Fund could find a solution together with the OASDI Trust Fund, this situation destabilizes the US economy and would also increase poverty rates among the elderly. Read on to learn more about the current situation.
Social Security facing financing issues
The Social Security program has been confronting financing problems for some years now, nevertheless, it happens that the matter is getting worse with the passage of time and if Congress does not take action soon, millions of beneficiaries will probably see a relevant cut to their benefit amounts in the incoming time.
The latest annual report from the Social Security Board of Trustees has determined that the long-term finances of the program are not looking too good with estimates exemplifying that the Old Age and Survivors Insurance (OASI) trust fund is set to be almost sold out by 2033 if no modification in enacted now.
“Lawmakers have many options for changes that would reduce or eliminate the long-term financing shortfalls. Taking action sooner rather than later will allow consideration of a broader range of solutions and provide more time to phase in changes so that the public has adequate time to prepare,” the trustees wrote in a message to the public.
As such, if Congress does not take immediate action, beneficiaries might see their benefits cut by up to 20% in order to maintain the program solvent.
Social Security projected shortfall moves up by a year
The Social Security program has three sources of funding through which benefits are being paid:
- Social Security payroll taxes – 12.4% of an employees wages are paid towards this
- Interest income from the OASI trust fund and the Disability Insurance (DI) trust fund
- Taxes paid by beneficiaries on Social Security income exceeding certain thresholds
According to the trustees’ report, it is the OASI trust fund — which is used to pay benefits to retirees and survivors — in particular that is currently facing problems. Estimates from the report are estimating that the OASI trust fund will be depleted by 2033 and following this, the remaining revenue in the program would only be able to include 77% of all scheduled benefits. The DI trust fund is estimated to be able to keep paying out 100% of programmed benefits until 2099 which is the end of the report’s projection period.
The report then goes on to hypothesize that if the OASI and DI trust funds were connected into one OASDI trust fund, 100% of programmed payments would be covered just until 2034. Going forward from this point, the remaining revenue would only cover 81% of programmed benefits.
The previous year’s report planned that the OASDI trust fund would cover all scheduled payments until 2035. This implies that the shortfall has moved up a year when it contrasted to last year’s estimates and as such, combining the two trust funds will not probably be a feasible idea. The report also underlines that “the two funds could not actually be combined unless there were a modification in the law, but the combined projection of the two funds is frequently used to indicate the overall status of the Social Security program.”
Potential 20% cut to benefits
As needed by law in order to permit the Social Security program to keep solvency, a 20% cut to benefit payments may come into effect as soon as the end of the current year if Congress and lawmakers do not bring ahead a solution to avoid this shortfall. Proffesionals are also noticing that failure to take action now “could trigger broader economic consequences, including increased poverty rates among seniors and intensified financial stress for millions of American households.”
Whilst proposals to elaborate a brand-new investment fund, or rise payroll taxes have been brought forward, nothing has officially been presented to Congress yet spite of the ongoing discussions and debates related to the matter. If the 20% benefit benefit decrease does eventyally come to pass, the people who will feel its effects the most are an already vulnerable group, such as, retirees, disabled individuals, survivors, and dependents.