The trust fund that helps pay for Social Security retirement benefits took a financial hit from the pandemic and is now projected to be depleted in 2033, a year earlier than previous annual estimates, according to a trustee report released Tuesday by the Social Security Administration. However, depletion by 2033 wouldn’t mean the end of Social Security payments. Yes, they would be lower, but they would continue at 76% of normal levels, data from the report shows. Here’s how it works. Social Security retirement benefits are funded by a payroll tax that takes a 6.2% bite out of workers’ paychecks, with their employers kicking in an equal amount. (Self-employed people pay the entire 12.4%.) That money goes into the trust fund, which also earns interest to fund Social Security’s benefits. Most years, there has been more money coming into Social Security than going out, which has allowed it to build up the fund. But now, without enough tax revenue coming in to pay for all the benefits owed, the trust fund is being tapped to make up the difference, and will be exhausted by 2033, according to the latest estimate. Indeed, in 2021, for the first time since 1982, the program will spend more than it takes in, the trustees said in the report. Those deficits are projected to continue from here on out, thanks partly to increasing costs from an aging population and lower birth rates—meaning fewer young workers paying into the program. If money in the trust fund runs out, tax revenue would keep coming in, and payments could be made directly out of that tax money, instead of the trust fund. While Social Security payments would either have to be smaller, or the same-sized checks would arrive less frequently, beneficiaries wouldn’t go without payments—they would just receive less. To avoid sudden benefit cuts, Congress could, at some point before the money runs out, make changes to both funding and benefits to bolster the program’s finances. This has happened in the past. Lawmakers increased taxes and decreased benefits to keep Social Security in good financial health in 1977, and it stepped in again six years later to increase taxes and raise the age of eligibility, among other changes, to put the program on better footing. Various proposals to overhaul Social Security have been kicking around in Congress again— several were introduced this year—but so far none have been adopted. Have a question, comment, or story to share? You can reach Diccon at dhyatt@thebalance.com.
