Social Security’s Cash Reserves to be Fully Depleted by 2034, Threatening 24.9% Reduction in Benefits

According to the Social Security Board of Trustees’ 2022 annual report, the program’s cash reserves will be fully depleted by 2034, one year earlier than the 2020 report indicated. After that, annual taxes are expected to cover only about 78% of benefits each year. Longer life expectancies, a smaller working-age population, and an increase in retirees are part of the problem, as more people take money out of the system than pay into it.

Social Security is expected to cover 78% of scheduled benefits in the future through payroll taxes. Still, if the funding gap is not filled, people might receive lower Social Security payments or be required to pay more into the system. If no changes are made, benefits could be reduced by 24.9% in 2035. The worst-case scenario is that benefits could be cut, but some experts doubt that this is likely. Raising the payroll tax rate, increasing the salaries taxable to Social Security taxes, extending the full retirement age, limiting the yearly cost-of-living adjustments, and reducing benefits are just a few of the proposed solutions to address the budget imbalance.

The payroll tax rate might be raised in a variety of ways, such as by splitting the increase evenly between employers and employees or by giving extra money to businesses in order to conceal the tax increase from taxpayers. Raising the amount of wages subject to tax is another way to boost tax income for Social Security (Huddleston, 2023).