Social Security in 2024 – It’s Not All Bad News

Note: This post is part of the Social Security Series. Follow the link to see all of my Social Security-related posts.

Each year, as the law requires, the Board of Trustees of the two trust funds that constitute Social Security produces a report for Congress. The 2024 Social Security Trustees Report was released on May 6, 2024, and weighs in at a hefty 270 pages. The Trustees Report contains valuable insight into the current state of Social Security and provides forecasts that extend 75 years into the future.

Almost everyone is familiar with the messages of doom emanating from pundits in online and traditional media regarding Social Security. Honestly, they are not completely wrong. The Board of Trustees asserts to Congress numerous times in the report that changes are needed sooner rather than later to ensure trust fund solvency for the next 75 years and beyond. However, a few silver linings in this year’s report counter some of the doom and gloom overshadowing an extremely popular social program in the United States.

Understanding Social Security Trust Funds

To better understand the results in the report discussed below, knowing how Social Security is structured helps. Two distinct trust funds make up “Social Security”: the Old-Age and Survivors Insurance (OASI) trust fund and the Disability Insurance (DI) trust fund. The OASI trust fund pays retirement benefits to retired workers and their survivors. The DI trust fund pays benefits to disabled workers. Even though the trust funds are separate, the report often analyzes the performance and forecast of a hypothetical combined trust fund, OASDI.

Worker-to-Beneficiary Ratio Continues to Drop

Two groups of people factor into the Social Security equation: workers who pay into the trust funds and beneficiaries who are paid benefits from the trust funds. Most people fit into only one of these two buckets. However, some people fall into both groups. These are people who start receiving Social Security benefits and continue earning an income before reaching full retirement age. This group may have to pay additional taxes on their earned income until reaching full retirement age.

In terms of people paying into Social Security, in 2023 there were 183 million “covered workers”, or workers earning income on which they paid Social Security taxes. This represented a 1.2% increase in covered workers vs. 2022.

As far as beneficiaries are concerned, at the end of 2023, 67 million people were receiving Social Security benefits. This represented a 1.5% increase in beneficiaries vs. 2022.

The breakdown of 2023 beneficiaries is as follows:

  • 53 million retired workers and dependents of retired workers
  • 6 million survivors of deceased workers
  • 8 million disabled workers and dependents of disabled workers

The infographic below shows that the ratio of covered workers to OASDI beneficiaries has dropped over recent years. The ratio that was 3.2:1 in 2008 fell to 2.7:1 in 2023 and is expected to continue to fall to 2:1 by 2080.

Four boxes showing the change in the ratio of workers to Social Security beneficiaries across four years. The first box shows 2008 with a ratio of 3.2 workers to 1 beneficiary. The second box shows 2023 with a ratio of 2.7 workers to 1 beneficiary. The third box shows 2040 with a projected ratio of 2.3 workers to 1 beneficiary. The fourth box shows 2080 with a projected ratio of 2.0 workers to 1 beneficiary
The ratio of workers to beneficiaries continues to decrease over time

The result of the change in ratio means that there are fewer workers to cover the cost of retirement and disability benefits. This in turn means that each worker needs to pay a higher amount in taxes or there will not be enough income to cover the costs of the programs. Currently, as we will see below, the latter is the case.

Social Security Income Increases 10.5%, Which Is Great Except…

All covered workers pay a 12.4% payroll tax of their earned income into the combined trust funds up to an annually-adjusted maximum earned income, which in 2024 is $168,600. Self-employed workers pay the entire 12.4% whereas employees at a company pay 6.2% and employers pay the other 6.2%.

In 2023, the total income for the hypothetical combined OASDI fund was $1.35 trillion, an increase of 10.6% from 2022. 91.3% of income came from payroll taxes. The remaining 8.7% of trust fund income came from two sources. The first source was interest earned by the money already in the trust funds (4.95%). Workers who earned income above the exempt amount after starting to receive Social Security benefits but before reaching full retirement age made up the second source (3.75%).

Interesting Note: U.S. law requires that Social Security trust fund reserves are invested in U.S. treasuries. This means that the U.S. is using the trust funds to finance the country’s debt. With trust fund balances totaling $2.8 trillion at the end of 2023, that finances a lot of debt. The issue is that trust fund reserves are shrinking. As they shrink, less national debt can be financed using trust fund reserves. This will add to existing pressure on U.S. debt to find a home elsewhere in the world, which could increase interest rates on the debt and cause the debt to grow even faster.

…Costs Increased by 11.9% Reducing Existing Reserves

As we saw in the ratio of workers-to-beneficiaries above, with the Baby Boomer era workers retiring en masse the number of beneficiaries is growing faster than the number of workers. The increase in people receiving benefits has accelerated the growth of the cost of their retirement benefits.

In 2023, the total cost of the combined OASDI fund was $1.39 trillion, 3.1% higher than 2023 income. It only gets worse from there. By 2033, annual costs are forecast to exceed income by over 16%.

(in Billions)All Programs (OASDI)Retired + Survivor (OASI)Disability (DI)
Reserves – Start of 2023$2,830$2,712$118
Income$1,351$1,167$184
Costs$1,392$1,237$155
Variance($41)($70)$29
Reserves – End of 2023$2,789$2,642$147

Costs exceeded income by $41 billion in 2023

As costs exceed income, the existing asset reserves in the combined fund shrink. At the end of 2023, asset reserves sat at $2.79 trillion, or 188% of the forecast cost of $1.48 trillion in 2024. Almost $3 trillion in reserves seems like a large amount. However, with the income deficit forecast at $100 billion in 2024 and growing to over $300 billion per year by 2032, reserves will disappear by 2035.

According to the 2024 Trustees Report, should Congress not enact changes to the existing system the OASI trust fund will be depleted in 2033. If Congress enables the DI trust fund reserves to cover OASI trust fund shortfalls, the date when combined trust fund reserves are depleted is delayed two years to 2035.

Retirement Benefits Are Reduced Once Trust Fund Reserves Are Depleted

Once the OASI trust fund reserves are depleted, the program will no longer pay 100% of scheduled benefits. As shown in the table below, benefits do not drop to zero when reserves are depleted contrary to some extreme claims voiced in online and traditional media. Once reserves are depleted, the program will pay a reduced benefit percentage based on annual income minus administrative program costs.

OASI Fund DepletedOASI Benefits After Depletion
Separate Trust Funds203379%
Combined Trust Funds203583%

Without changes, OASI benefits drop to 79-83% in less than 10 years

The 2024 Trustees Report gives two examples of reduced benefits:

  • OASI and DI Trust Funds kept separate – In this scenario, OASI and DI trust fund reserves are kept separate. In 2033, OASI trust fund reserves are depleted and OASI benefits drop to 79% of scheduled benefits
  • OASI and DI Trust Funds are merged – In this scenario, Congress enacts changes that enable DI trust fund reserves to cover OASI trust fund reserve shortfalls. The combined OASDI trust fund reserves provide enough funds to fully fund OASI benefits for two additional years than the first scenario. In 2035, however, the reserves in the combined trust fund are depleted and benefits drop to 83% of scheduled benefits

But You Said It’s Not All Bad News

The worker-to-beneficiary ratio is getting worse, annual costs already exceed income, the income-to-cost imbalance will continue to grow, and OASI benefits will cease to be paid at 100% at some point in the next 8 to 10 years. All true.

Yet there were a couple of tidbits of good news in the 2024 Trustees Report including:

  • The year in which the hypothetical combined OASDI trust fund is forecast to deplete reserves was delayed one year from 2034 to 2035. This one-year reprieve was due to two main factors: 2023 income and cost actuals and three changes to assumptions that impact future year estimates
    • Total Fertility Rate was adjusted downward from 2.0 in 2023 to 1.9 in 2024
    • The incidence rate of disabled worker applications was adjusted downward from 4.8 per thousand in 2023 to 4.5 per thousand in 2024
    • The level of Gross Domestic Product (GDP) was increased by a total of 3 percent over the 75-year projection from 2024 through 2098 due to an increase in the expected labor productivity rate and an upward revision to the projected employment rate for the working-age population
  • 2023 Disability Insurance (DI) trust fund income exceeded costs by $29 billion, and the fund is forecast to remain solvent through the entire 75-year projection period. This of course assumes that the fund’s reserves are not used to cover shortfalls in the OASI trust fund as discussed above
A line graph depicting the change in the Disability Insurance (DI) trust fund ratio from 2023 to 2100. 2023 76%. 2028 134%. 2033 240%. 2040 368%. 2050 434%. 2075 629%. 2100 876%.
DI Trust Fund Ratio is forecast to grow from 76% in 2023 to 876% in 2100

Unfortunately, a one-year reprieve does not mean that the OASI trust fund reserves shortfall issue is resolved. Unless Congress changes the existing system, the OASI or combined OASDI trust funds will be depleted in a decade or less and beneficiaries will watch their monthly payments drop below expected levels.

What Can Be Done To Fix These Issues?

In my next post, I will look at the Board of Trustees’ recommendations in the 2024 Social Security Trustees Report to try and ensure that the OASI trust fund remains solvent through the 75-year projection period. As with many things in life, change is not easy. However, making changes now will have less negative impact than waiting until the last minute.

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