The 2024 Trustees Report reveals some improvements in the financial outlook for Social Security, although challenges remain. The report shows a slight reduction in the projected 75-year deficit, now at 3.50 percent of taxable payroll, down from 3.61 percent in 2023. This improvement is mainly due to increased productivity growth and a lower disability rate. However, the future of Social Security, especially the Old-Age and Survivors Insurance (OASI) trust fund, still requires immediate attention to avoid serious benefit cuts.
Key Findings from the 2024 Trustees Report
Projected Deficit and Depletion Date
The 2024 report highlights that the OASI trust fund’s depletion date remains unchanged at 2033. Without changes, the trust fund will be exhausted in nine years. The Disability Insurance (DI) trust fund, however, can pay full benefits for the entire 75-year period. The combined OASDI trust funds are projected to run out in 2035, but merging the two systems would require a law change. Congress must act quickly to prevent steep benefit reductions when the trust fund runs out.
Social Security Costs Over Time
The cost of the Social Security program is rising due to demographic shifts. The program’s cost is projected to increase from 14.7 percent of taxable payrolls today to 18.6 percent by 2080. The primary factor driving this increase is the aging Baby Boomer population and a slower-growing workforce. The ratio of workers to retirees will drop from 3:1 to 2:1, significantly raising the cost burden on future workers.
The 75-Year Deficit and Potential Solutions
The short-term Social Security deficit is currently offset by assets in the trust fund, which will last until 2033. Payroll taxes, which continue to flow into the system, will cover about 79 percent of benefits at that point, dropping to 71 percent by the end of the 75-year projection period. One solution would be to raise payroll taxes by 3.50 percentage points (1.75 percent for employees and employers each) to cover the deficit and maintain benefits.
Delaying Action Increases the Burden
Delaying action to fix Social Security raises significant costs for future generations. Boomers and Generation X are unlikely to face tax hikes or benefit cuts, leaving Millennials and younger generations to bear the brunt of the financial strain. If action is delayed until 2035, future workers will need to absorb tax increases of over 4 percent or benefit cuts of up to 25 percent.
Investing in Equities as a Solution
One potential option is investing a portion of the Social Security trust fund in equities. Historically, equity investments have yielded higher returns compared to safer assets, which could help close the deficit. For example, if Social Security had invested 40 percent of its assets in equities in the 1980s or 1990s, the trust fund would be in a much stronger position today. However, this option is disappearing quickly as the trust fund continues to shrink.
Fixing Social Security sooner rather than later will keep more options open for maintaining solvency, such as equity investments, and spread the financial burden more fairly across generations. It will also restore public confidence in the program. To avoid future crises, any reform package should include automatic adjustment mechanisms to keep the system financially stable.
