Social Security will not be able to pay full benefits in 2035 if Congress doesn’t act. Medicare has a little more time

By Tami Luhby, CNN

(CNN) — Social Security and Medicare will not be able to fully pay benefits in just over a decade if lawmakers don’t act to address the pending shortfalls, according to reports released Monday by the entitlement programs’ trustees. While the trust funds’ finances improved slightly, they remain in dire shape.

The combined Social Security trust funds – which help support monthly payments to the elderly, survivors and people with disabilities – are expected to be exhausted in 2035, one year later than previously forecast, according to its trustees’ annual report. After that, payroll tax revenue and other income sources will only be able to cover 83% of benefits owed.

Meanwhile, Medicare’s financial condition improved more. It is expected to be able to cover scheduled inpatient hospital benefits until 2036, five years later than last year’s projection, according to its trustees.

The reports are likely to become a talking point in this year’s presidential campaign. Both President Joe Biden and his presumptive Republican rival, former President Donald Trump, have promised to protect Social Security and Medicare, both beloved but endangered entitlement programs.

However, even with this reminder from the trustees, Congress is unlikely to delve into the controversial issue anytime soon, even as the ballooning programs are putting added strain on the federal budget and contributing to rising deficits.

But the longer lawmakers wait, the fewer options they’ll have, experts warn.

Looking solely at the trust fund that covers retirement and survivor benefits, Social Security will only be able to afford scheduled payments in full until 2033, roughly the same projection as last year. At that time, the fund’s reserves will be depleted, and continuing income will only cover 79% of benefits owed.

The Disability Insurance Trust Fund is expected to be able to cover full benefits at least through 2098, when the projection period ends. Merging the two trust funds would require an act of Congress, but the combined projection is often used to show the overall status of the entitlement.

About 67 million Americans received Social Security benefits in 2023.

As for Medicare, its hospital insurance trust fund, known as Medicare Part A, has a few more years before it runs dry. But in 2036, Medicare will only be able to pay 89% of total scheduled Part A benefits, which also cover hospice care, short-term skilled nursing facility services and home health services following hospitalizations.

Medicare covered 66.7 million senior citizens and people with disabilities in 2023.

Campaign issue

The fate of Social Security and Medicare is once again an issue in the presidential campaign.

Immediately after the trustees’ reports were released, Biden released a statement drawing a contrast between his plans for the entitlement programs and Republicans’ efforts.

“Medicare is stronger and Social Security remains strong,” he said in a statement. “As long as I am President, I will keep strengthening Social Security and Medicare and protecting them from Republicans’ attempts to cut benefits Americans have earned.”

Biden has repeatedly slammed a budget proposal from a conservative House Republican group for containing benefit cuts and has criticized Trump for being open to slashing the two programs. Biden’s campaign has pointed to a CNBC interview Trump did in March where he referenced that there was a lot one could do in terms of cutting entitlements.

Trump said he was referring to addressing theft and bad management of the programs and repeated his promise to protect the programs. His campaign did not immediately release a statement on the trustees’ reports.

Neither Biden nor Trump have rolled out detailed proposals to address Social Security’s looming shortfall, though Biden has said he would increase taxes on higher-income Americans to help shore up the program.

Biden has issued a plan that he says would solve Medicare’s financial problems by raising certain taxes on wealthier individuals and funneling some savings from the proposed Medicare drug reforms into the trust fund. Trump has not suggested a fix for Medicare.

Aging of America

Social Security and Medicare have long been on shaky financial ground, largely because the nation’s population is getting older and living longer. The number of beneficiaries is ballooning, but fewer workers are paying into the programs. Also, health care is becoming more expensive.

Monthly Social Security checks are a lifeline for many retirees, representing about 30% of the income of people over age 65.

The projected finances of the combined Social Security trust funds improved mainly because the trustees are now forecasting a higher level of labor productivity given that economic growth in 2023 was stronger than had been anticipated in last year’s report. Also, they are now assuming a lower incidence rate for long-term disability benefits, which raises the projected employment rate for working-age Americans. But those improvements are partially offset by lower fertility projections.

The forecast for Medicare’s hospital trust fund finances strengthened because of several factors, including a policy change correcting for the way medical education expenses are accounted for in Medicare Advantage rates starting this year, higher payroll tax income resulting from the stronger-than-expected economy and lower-than-projected expenditures in 2023.

Although the programs’ trust funds could become insolvent if lawmakers don’t act, that doesn’t mean the entitlements will cease to exist entirely, said Joel Eskovitz, senior director of Social Security and savings at the AARP Public Policy Institute.

“As long as people are paying into the system and paying their payroll taxes, Social Security will be there,” he said. “If nothing changes, the program will not pay out 100% of the benefit as scheduled. That’s the concern.”

Adding to the deficit

The entitlement programs are also weighing on the federal budget at a time when lawmakers are increasingly concerned about the growth in the federal debt. The federal budget deficit will swell from $1.6 trillion this fiscal year to $2.6 trillion in fiscal year 2034, according to the latest Congressional Budget Office outlook.

Contributing to that rise is the projected growth in spending on Social Security and Medicare. Spending on the former is expected to jump from $1.3 trillion in fiscal year 2023 to $2.5 trillion in fiscal 2034, while Medicare outlays will more than double from $832 billion to $1.7 trillion over the same period, according to the CBO.

Still, the latest trustees’ report is not likely to push Congress into addressing the thorny issue of entitlement reform. Over the years, lawmakers have floated a range of proposals – including raising the retirement age, hiking the income threshold for payroll taxes and reducing the growth of benefits. But few have wanted to press the issue since it’s such a hot-button topic.

House Speaker Mike Johnson has said that he will tackle entitlement reform as part of a fiscal commission that he has pushed, though some consumer advocates fear that the end result will be recommendations to cut benefits.

If Congress acts sooner, they’ll be able to choose from a wider array of solutions, experts say.

“They can be phased in. They can be less draconian,” said Linda Stone, senior retirement fellow at the American Academy of Actuaries. “There’s a way to share the burden across more generations.”

This story has been updated with additional information.

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