from Your News:
Social Security grapples with $63 trillion in long-term unfunded liabilities, raising concerns about the program’s sustainability and prompting calls for urgent reform.
By yourNEWS Media Newsroom
Social Security is confronting a staggering $63 trillion in long-term unfunded liabilities, according to the 2024 Old Age, Survivors, and Disability Insurance (OASDI) trustees report. The report, which evaluated both an infinite horizon projection and a 75-year outlook, indicated that the shortfall over the infinite horizon amounts to $62.8 trillion, while the 75-year projection showed a deficit of nearly $23 trillion. These findings, outlined in the report, underscore the fiscal challenges facing the nation’s retirement system.
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The OASDI trustees noted that the shortfall is driven by annual cash-flow deficits following the depletion of trust fund reserves, exacerbated by rising life expectancy. “The annual shortfalls after trust fund reserve depletion rise slowly and reflect increases in life expectancy,” the report stated. It also highlighted that a potential solution to these financial challenges would involve either raising the payroll tax to around 17% or implementing a permanent reduction of benefits by approximately 26.5% for all current and future beneficiaries.
Laurence Kotlikoff, an economics professor at Boston University, stressed the importance of assessing Social Security’s unfunded liabilities over the infinite horizon. Kotlikoff likened the current approach of only considering a 75-year outlook to only partially treating a cancer diagnosis. “There’s nothing in economics that says you should just look at 75 years and assume everybody’s going to be dead the day after,” Kotlikoff said.
In addition to the OASDI report, a Treasury Department report from earlier this year revealed that U.S. taxpayers face over $78 trillion in long-term unfunded obligations for both Social Security and Medicare. Mark Warshawsky, a senior fellow at the American Enterprise Institute, criticized the optimistic assumptions underpinning these projections, noting that they rely on scenarios where the U.S. avoids financial crises, military conflicts, and other major disruptions. Despite its limitations, Warshawsky emphasized that the report provides valuable insight into the magnitude of the fiscal problem.
The latest figures from the nonpartisan Congressional Budget Office (CBO) also painted a concerning picture, projecting that the Old Age and Survivors Insurance Trust Fund will be exhausted by 2033. The CBO further indicated that the Disability Insurance Trust Fund could be depleted by 2064, potentially leading to a 21% cut in benefits if no action is taken.
Lawmakers have proposed various solutions to address the looming funding crisis. In March, the Republican Study Committee recommended raising the eligibility age for Social Security benefits from 65 to 67 as part of its fiscal year 2025 budget proposal. Meanwhile, President Joe Biden and other Democrats have advocated for ensuring that “the highest-income Americans pay their fair share,” without cutting benefits or privatizing the program, as the White House stated in March.
Experts like Kotlikoff have proposed more radical reforms, including replacing the existing Social Security system with a fully funded, progressive retirement account model. Doug Carey, a chartered financial analyst, suggests increasing the payroll tax or raising the payroll tax cap beyond its current threshold of $168,600 to bolster the trust fund’s solvency. Other experts, such as Tyler Meyer of QED Wealth Solutions, have called for a means-testing approach to reduce benefits for higher-income retirees.
With the Social Security cost-of-living-adjustment (COLA) projected to be around 2.6% in 2025, many retirees are concerned about whether benefits will be sufficient in the face of rising inflation. A study by The Senior Citizens League found that the buying power of seniors’ benefits has decreased by 20% since 2010, leaving retirees struggling to keep up with costs. As inflation continues to erode the value of benefits, retirees would need an average annual boost of $4,440—$370 per month—to recover their lost purchasing power.
