Washington, DC – The 2021 trustees report for Social Security released today shows that while COVID-19 did not dramatically affect the program’s finances, its primary trust fund remains just over a decade away from fully depleting its reserves.
The report, released nearly five months late—the longest delay in the past 25 years—is the first to lend insight into the pandemic’s impact on Social Security’s solvency. It projects that the Old-Age and Survivors Insurance (OASI) trust fund will be depleted in 2033, one year earlier than last year’s projection that did not consider the effects of COVID-19. If policymakers fail to act in time, benefits would be cut by 24% at that point. The Disability Insurance (DI) trust fund is projected to be depleted in 2057—eight years sooner than last year’s estimate.
“Given last year’s massive labor market disruption and that Social Security beneficiaries are expected to see their largest cost-of-living adjustment since 1983, it’s remarkable that the overall picture remains just about the same,” said Bill Hoagland, BPC senior vice president. “But even if this bout of inflation proves transitory, there clearly remains an urgent need to address the program’s finances.”
As the unemployment rate rose to nearly 15% during spring 2020, there were concerns that a slow recovery from the economic crisis could carry serious consequences for Social Security, depressing payroll tax revenue for years. But the labor market bounced back quickly, with the unemployment rate now down to 5.4% just 15 months later. When paired with wage growth and the unfortunate early passing of many beneficiaries, the program’s finances are only modestly worse off as a result of the pandemic.
Nonetheless, Social Security’s costs have risen significantly over the past 10 years and are expected to continue increasing. The financial shortfall for the combined trust funds is now $19.8 trillion in present value over the next 75 years, up 18% from last year’s report. Notably, the program’s costs are projected to exceed its total income in 2021—for the first time since 1982—and remain elevated over the next 75 years. Social Security will now need to start redeeming trust fund bonds to pay full benefits, beginning fund depletion.
“It’s welcome news that Social Security seems to have largely weathered the storm, but we’re still just over a decade away from trust fund depletion, and the measures required to restore solvency will only become more severe,” said Shai Akabas, BPC director of economic policy. “The failure by policymakers to address this challenge is simply unfair to the millions of Americans who are either on the program or planning their retirement in the years to come.”
Closing the program’s financing gap by raising the payroll tax rate would require an immediate 27% (3.4 percentage point) increase in the rate, from 12.4% to 15.8%. Alternatively, eliminating the shortfall by reducing benefits for those not yet eligible to claim Social Security would require a 25% cut to future benefits. Notably, this number rose from the 23% reduction in the 2020 trustees report, highlighting the harm caused to future beneficiaries by delaying Social Security reforms.
“The time to act is now, not when depletion is imminent. The financial wellbeing of workers, retirees, and disabled Americans depends on it,” said Hoagland.
Bill Hoagland and Shai Akabas are available for comment.