The 5 Biggest Takeaways From 2022’s Social Security Trustees Report

Social Security has played a vital role in financing retirement for decades, but the program is in financial peril. The trust funds that hold reserves for future Social Security benefits don’t have enough money to cover the demographic wave of older Americans claiming benefits indefinitely into the future.

Each year, the trustees who govern Social Security’s trust funds write a report about the financial condition of the program. The 2022 Social Security Trustees Report is a whopping 275 pages long. But don’t worry, because below, you’ll find the five most important things the report told Americans about how Social Security looks.

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1. Social Security got a year’s reprieve

Most people have one concern about Social Security: When will the trust funds run out of money? According to the report, the year the combined trust funds will hit zero is 2035 — one year later than what the trustees projected in the 2021 report.

Interestingly, for the first time ever, the trust fund that handles disability benefits is projected to survive for the next 75 years. However, the much larger trust fund for retirement benefits will run out of money in 2034, and diverting the excess available from the disability trust fund only buys the program a single year.

2. Retirees should prepare for a 20% benefit cut

Even if the trust funds run out of money, Social Security won’t stop. But the program won’t have enough funding to pay 100% of scheduled benefits without taking money from elsewhere.

Without outside assistance, the Social Security trustees expect to be able to pay 77% of retirement and survivor benefits from the trust fund dedicated specifically to old age and survivor benefits after its assets run out. If you combine both of the two trust funds, transferring money dedicated to disability benefits for use in paying retirement benefits, then it’ll allow Social Security to pay 80% of scheduled benefits. That’s a smaller cut than it’s been in recent years, but it’ll still be painful for retirees.

3. It’s not easy to fix Social Security

Fixing Social Security would be expensive. If lawmakers choose to raise payroll taxes to produce enough revenue to pay full benefits, they’d have to boost the 6.2% that currently gets taken out of employee paychecks to 7.82%. Employers would be on the hook for an identical increase in their share of Social Security payroll taxes.

Alternatively, lawmakers could cut benefits now. They’d need to reduce all current and scheduled benefits by 20.3% right now or impose an even steeper 24.1% cut on only those who’ll become eligible for benefits in 2022 or later.

4. Waiting to act would be even more costly

As hard as those actions would be, they’re easier than what would have to happen if lawmakers procrastinate. Waiting until 2035 would require a payroll tax boost to 8.235%, or a reduction of 24.9% in all benefits starting in 2035 would be necessary. Some combination of those two strategies could also work to ensure Social Security’s financial strength.

5. Exactly when Social Security’s trust funds will hit rock bottom remains uncertain

The Social Security Trustees Report is so long because it includes sophisticated statistical and actuarial analysis. The headline numbers that get repeated every year sound like they’re fixed in stone, but in actuality, they represent just the midpoint of an expected range of possible outcomes.

In particular, the trustees look at confidence intervals to establish the most likely results, with different assumptions guiding various scenarios. The 2022 report expresses the belief that there’s a 95% probability that Social Security trust funds could run out of money as early as 2031 or as late as 2043. That’s roughly consistent with past reports, indicating that even as we get closer, there are plenty of variables that the trustees can’t predict.

The day of reckoning is coming

Politicians have always had a tough time addressing Social Security. But with the program running out of time, Washington won’t be able to delay taking action much longer before the consequences could be dire.

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