By Stephen Smoot
Last summer, about six months after the previous release, the Social Security Trustees released their annual report. The first such report from the second Trump Administration differed only slightly from that issued by that of the Joe Biden presidency at the end of 2024.
In short, the report echoes previous years in issuing an alert as to the coming impact of growing deficits affecting the trust fund.
Two trust funds existing in complete legal separation operate under Social Security. The Old Age and Survivors fund represents what most people think of in terms of Social Security, payments meant to supplement (not to replace) individual retirement income from other sources. Disability Insurance (or DI) covers those deemed incapable of work by a physician and also meeting the requirements of program inclusion.
While the funds operate independently by law, the Trustees’ report often combines them for hypothetical purposes in terms of projecting the future of Social Security itself. The funds themselves for over a decade have moved in almost opposing pathways. According to the Trustees, the DI fund earns 108 percent of what it pays out per year with an educated assumption that the ratio will continue increasing in a positive direction, meaning that “DI reserves do not become depleted within the 75-year range projection period.”
This has occurred because of an unpredictable, but stable, dynamic with disability in general. “The DI program continued to have low levels of disability applications and benefit awards.” Furthermore, “disability applications have declined since 2010 and the number of disabled-worker beneficiaries has been falling since 2014.”
Disabled beneficiaries number approximately 8 million, or about .0023 percent of the total US population. In comparison, the number of both retirees and survivors receiving benefits numbers about 60 million of nearly 350 million living in the United States today.
The cost of the program in 2024 added up to nearly $1.485 billion with the total income reaching about $1,418 billion. Trust fund reserves in that period declined from $2.788 billion at the start of 2024 to $2.721 billion at the end. This may give the illusion that a quick billion dollar infusion could stabilize the fund, but the structural deficits of the program through 2099 would require approximately $25.1 trillion in 2025 dollars to cover “open group unfunded obligations.” Again, the DI trust fund is sound and improving.
Those deficits come from a number of sources, some of which were not anticipated by the original crafters of Social Security.
First, the Total Fertility Rate has dropped below the statistical population replacement level of 2.1 births per woman to 1.9. That has not changed since last year’s report, but the year at which the “ultimate rate” is reached extended from 2040 in last year’s report to 2050 now.
Another factor lies in the ratio of national labor compensation to Gross Domestic Product. The ratio remains high in the favor of labor compared to historical numbers. Labor is expected to receive 61.2 percent by 2034 with the percentage remaining steady for the foreseeable future. The remainder of GDP includes a number of other items, including business profits. This helps to mitigate some of the other issues.
Trustees have cited the 2023 Social Security Fairness Act as another key reason for the rise in the deficits. As they explained, the act “reduced or eliminated the Social Security benefits of individuals receiving a pension based on work that was not covered by Social Security.” That had the effect of “increasing Social Security benefits for people who worked in jobs that were not covered by Social Security.”
Reserves compared to annual cost will decline sharply. In 2025 they counted for 169 percent of the program cost, but will drop under 100 percent for the first time in 2029 and continue to decline “until reserves become depleted in 2034.” That expectation is from the hypothetical, but currently not legal, combination of the OASI and DI funds, also.
Without that, the OASI alone will have no trust fund left in 2033. Adding the two would cover “the projected cost over the next 10 years.”
Costs incurred by the program will continue to rise. Trustees see it expanding from 15.15 percent of taxable payroll in 2025 to 18.96 percent for 2081, with a slight decrease to 18.34 percent in 2099. That would still be 4.67 percent higher than the annual income rate. The report noted that “OASDI cost has generally increased much more rapidly than taxable payroll since 2008 and is projected to do so through about 2040.”
Again, Disability Insurance’s Trust Fund health mitigates that slightly in the hypothetical analysis due to the low numbers of people on Social Security Disability.
After 2040, the cost rate growth is predicted to slow until 2080. Then, “the OASDI cost rate declines and then stabilizes.”
One of the unpredictable impacts on Social Security has come from significant declines in the birth rate. In 1930, the last United States Census count before the advent of Social Security, the birth rate was 2.98 births per woman. That had declined steeply from 3.5 to 3.8 births per woman in 1920, but still much higher than 1.9 in 2025.
As the Trustees’ stated “the baby-boom generation is aging and increasing the number of beneficiaries much faster than the increase in covered workers, as subsequent lower-birth-rate generations replace the baby-boom generation at working ages.” In 1950, the birth rate had climbed back to 3.5. That dropped to under 2.0 for a time in the 1970s and rose gradually going forward, correlating to the cultural shift towards more women of childbearing age entering the workforce at all levels.
In “The Collapse of State Socialism: the Case of Poland,” by Bartlomiej Kaminski, the author explained why Communism collapsed as both a government and an economic system in that country. One key issue lies in the fact that when governments have control of economic entities, whether they be Social Security or a public utility, they generally lack the will to make crucial decisions to sustain the entity properly financially.
Governments and their officials do not want to get blamed for rising costs, so they defer needed actions that would help to pay for those. For example, several years ago the City of Keyser received heated public backlash for a sharp rise in water and sewer rates, but previous Councils had not adjusted rates yearly to match increased costs. Ratepayers got a massive “all at once” hike rather than one that could be more easily digested in smaller “bites.”
Social Security is called one of the “third rails” of American politics, the metaphor referring to the electrified, and deadly, rail that powers subway cars. Elected officials fear blowback from any changes that could help the long-term stability of the program, but bring slight disadvantages to current and/or future recipients.
As the Trustees state this year and last, the time for incremental changes to resolve issues has long since passed. They did lay out, however, potential options for righting the program’s ship in two categories. The first referred to what should be done currently to prevent depletion of the Trust Fund while the second offered options if nothing takes place between 2025 and the depletion of the OASI fund in 2033, or if DI gets added in at some point, 2035.
Trustees recommend one of these options to help restore the fund, or some partial combination of those presented.
Revenues, from whatever source, “would have to increase by an amount equivalent to an immediate and permanent payroll tax increase of 3.65 percentage points to 16.05 percent.” Another option lay in “reduce scheduled benefits by an amount equivalent to an immediate and permanent reduction of 22.4 percent applied to all current and future beneficiaries . . . or by 26.8 percent if the reductions apply only to those who became initially eligible for benefits in 2025 or later.”
Those numbers may have been grafted from the previous annual report because the recommendations include initiating in January 2025, six months prior to the release of this one.
Mitigating changes become much more severe if nothing happens prior to the depletion of the Trust Fund. To operate Social Security without the reserves, or “paycheck to paycheck,” Trustees recommend “a permanent 4.27 percentage points payroll tax increase to 16.7 percent starting in 2034. The other main option lies in “reducing scheduled benefits to an amount equivalent to a permanent 25.8 percent reduction in all benefits starting in 2034.
Again, some partial combination of the two, Trustees said, would suffice.
