The Social Security and Medicare trust funds are facing significant financial challenges, according to the latest annual report from the programs’ trustees. The report warns that the Social Security trust funds could be depleted by 2034, a year earlier than previously projected, which would trigger a 19% cut in benefits for recipients. The trustees found that the combined Old-Age and Survivors Insurance (OASI) and Disability Insurance (DI) trust funds would be able to pay 100% of scheduled benefits until 2034.
Once depleted, the trust funds would only be able to cover 81% of scheduled benefits, leading to an automatic reduction in payments. As of January 2025, the average monthly Social Security benefit was $1,976. A 19% reduction would lower payments by $376, bringing the new average to approximately $1,600 per month.
The shortfall arises because Social Security is funded through a combination of current workers’ payroll taxes and trust fund assets. Once the trust funds are depleted, the system would rely solely on payroll taxes, which are insufficient to cover full benefits. The trustees also project that Medicare’s Hospital Insurance (HI) trust fund will be depleted by 2033, three years earlier than previously reported.
At that point, Medicare would only be capable of paying 89% of scheduled benefits, resulting in an 11% cut. The report urges lawmakers to address these projected shortfalls promptly to phase in necessary changes gradually.
Social Security facing funding shortfall
“With informed discussion, creative thinking, and timely legislative action, Social Security and Medicare can continue to protect future generations,” the trustees stated. The financial woes of Social Security and Medicare stem largely from the aging of the American population. The ratio of workers paying taxes to the number of beneficiaries has shifted significantly over the decades.
In 1955, there were 8.6 workers for every beneficiary; by 2013, that number had fallen to 2.8. This declining ratio places additional strain on the system. Maya MacGuineas, president of the nonpartisan Committee for a Responsible Federal Budget, emphasized the urgency of addressing the issue. “Social Security and Medicare won’t even be able to pay full benefits to current retirees—they will be insolvent when today’s 59-year-olds reach the full retirement age and today’s youngest retirees turn 70,” MacGuineas said.
“It’s time to start telling the truth when it comes to Social Security and Medicare. We are running out of time to phase in changes gradually and avoid harsh cuts, sharp tax increases, or unacceptable borrowing.”
AARP CEO Myechia Minter-Jordan also emphasized the importance of protecting these programs. “AARP members and older Americans nationwide consistently say that the future of Social Security and Medicare are the issues they care about most, and they stand ready to hold politicians across party lines accountable to strengthen these programs for the long term,” Minter-Jordan stated.
The report serves as a stark reminder that legislative action is needed to ensure the sustainability of these critical programs for future generations. Congress has the option of addressing the shortfall through various means, such as raising taxes, cutting benefits, or a combination of both. The urgency for a comprehensive plan to sustain Social Security and Medicare is clear, and lawmakers must address these challenges swiftly to ensure continued support for millions of Americans relying on these crucial programs.