The Social Security Administration (SSA) announced on Monday that the timeline for potential benefit cuts has been extended by one year, with the agency now projecting that it may not need to reduce benefits until 2035. The news, which comes from the Social Security Board of Trustees' annual report, is being hailed as "good news" for the program's 70 million beneficiaries, according to Martin O'Malley, Commissioner of Social Security.
Despite the improved outlook, O'Malley urged Congress to take steps to shore up the program to ensure it can pay full benefits "into the foreseeable future." Social Security relies on its trust funds to provide monthly checks to beneficiaries, with the funds primarily financed through payroll taxes. However, the funds' reserves are being drawn down as spending outpaces income, partly due to the wave of baby boomer retirements and an aging U.S. population.
If the trust funds are depleted, Social Security beneficiaries will face a cut to their monthly checks. The agency projects that recipients would lose 17% of their current benefits, a modest improvement from last year's projection of a 23% reduction. Nonetheless, such a cut would be painful for millions of retired and disabled Americans.
Advocates for older Americans, including AARP CEO Jo Ann Jenkins, have praised the improved outlook while pressing Congress to reach a bipartisan solution to ensure the long-term stability of Social Security benefits. "The stakes are simply too high to do nothing," Jenkins said in a statement.
O'Malley attributed the improved Social Security forecast to the stronger economy, citing "impressive wage growth, historic job creation, and a steady, low unemployment rate." The healthier job market has resulted in more Social Security taxes going into the funds' coffers.
However, financial experts warn that the Social Security program is still "heading for trouble" without significant action. John Sedunov, professor of finance at Villanova University in Pennsylvania, told Newsweek, "We are certainly heading for trouble without some kind of action, as borrowing costs will be gigantic to continue to fund the Social Security program at current (or increasing with inflation) levels."
Sedunov also noted that with the 2024 presidential election approaching, neither Republicans nor Democrats are likely to want to make cuts to the program to save it from insolvency. "I don't think either of the two parties-Donald Trump or Joe Biden-wants to be the one to make cuts, heighten requirements for the program, or increase taxes to pay for it-but something has to give," he said.
Meanwhile, Medicare's "go broke" date for its hospital insurance trust fund was pushed back five years to 2036 in the latest report, thanks in part to higher payroll tax income and lower-than-projected expenses. Once the fund's reserves become depleted, Medicare would be able to cover only 89% of costs for patients' hospital visits, hospice care, nursing home stays, or home health care that follow hospital visits.
President Joe Biden credited his administration's economic policies for Social Security and Medicare's stronger outlook, stating, "Since I took office, my economic plan and strong recovery from the pandemic have helped extend Medicare solvency by a decade, with today's report showing a full five years of additional solvency."
The SSA itself has warned that policy changes are needed sooner rather than later to keep the program solvent, with O'Malley emphasizing that "Congress can and should take action to extend the financial health of the Trust Fund into the foreseeable future, just as it did in the past on a bipartisan basis."
