The Social Security Administration issues an annual trust fund report showing how much money is left to pay for retirement. It also lists how much money’s in a separate trust fund that pays for disability and Medicare benefits. In the most recent report, trustees noted the combined trust funds generated a $2.5 billion surplus in 2019. And while we still don’t yet know the full impact of last year’s pandemic, it will influence future benefit payments. Let’s take a closer look at what it all means for anyone who depends on Social Security benefits.
How the Social Security Administration Spends Trust Fund Money
The SSA has two different trust funds it uses to pay for Social Security benefits. One is the general fund that pays for people’s retirement checks; the other is the disability trust fund. They are called the Federal Old-Age and Survivors Insurance (OASI) Trust Fund and the Federal Disability Insurance (DI) Trust Fund. This year’s report says the trust fund that pays disability benefits will exhaust its reserves in 2034.
In addition, the general fund that pays for Social Security retirement will be depleted in 2065. By law, the SSA must keep the money in these two funds separate from each other. However, the government — and people in the media that cover Social Security issues — refer to both funds like they’re combined. For the first time since 1982, trustees project that total expenditures for these combined trust funds will operate at a deficit. That means the SSA expects to take in less revenue during 2021 than their total annual expenditures.
How This Year’s Report and the Ongoing Pandemic May Affect Future Social Security Checks
While people tend to make a big deal when the trust funds go down, there’s no need to panic! This year’s report may sound bad, but “depleted” isn’t exactly the right word for what’s going on. Here’s what it actually means: After 2035, the SSA can only pay for about 79% of retirees’ Social Security benefits. So for every retirement dollar the SSA might owe you in 2035, for example, you’ll receive just 79 cents instead.
To stay solvent, the Disability Insurance trust fund won’t have to reduce benefits until 2065. After that, the agency must reduce SSD payments 8% across the board. In other words, you’ll get 92 cents in SSD benefits for every $1 you’re entitled to under current law. Congress could, at any time, choose to pay for Social Security disability benefits with money from the general fund. Unfortunately, the recent federal tax reform law makes things even worse for beneficiaries going forward. How? Because reform rules cut how much payroll tax each company owes, even less money goes into both funds.
Right now, 10.6% of Social Security payroll taxes go into the OASI trust fund that pays retirement benefits to older Americans. Just 1.8% of those payroll taxes flow into the DI trust fund that pays monthly SSD benefits.
What Happens if That Money Runs Out?
The Congressional Research Service recently answered this very question. If the trust funds run completely out of money, the SSA wouldn’t stop issuing disability and retirement benefits right away. It just means that incoming tax revenue could only pay about 79% of benefit payments already scheduled to go out.
If one trust fund became depleted and tax money coming in didn’t cover current expenses, something really interesting would happen. It would create a conflict between two federal laws. Under the Social Security Act, beneficiaries would still be legally entitled to receive their benefits in the full, scheduled amounts. However, another federal law called the Antideficiency Act prohibits the government from spending trust fund money it doesn’t already have. As a result, the SSA would have no legal authority to pay full Social Security benefits on time.
If either trust fund becomes depleted, that doesn’t stop more tax revenue from coming in. This tax money will pay for most scheduled benefits the SSA owes to qualified retirees. What about the rest — like your monthly SSD checks? The SSA has a couple of options:
- Pay full benefits on a delayed schedule.
- Make benefit payments on time as scheduled, but for a lower amount.
The problem these two options present is one for the courts to solve. How so? Social Security retirement beneficiaries will still be entitled to receive full, timely benefit payments based on their prior tax contributions. Only the courts can decide which law takes precedent over the other in cases like these.
Easy Ways to Fix the Trust Fund Shortfall
You’re probably wondering what we could do now to prevent total trust fund depletion in the future. There are several math changes the SSA can try on Disability Insurance trust fund payments. These tactics rely on Congress taking some kind of legislative action. They include:
- Increasing Social Security payroll taxes. Nobody wants to see payroll taxes go up, but even a small boost could fix these trust fund solvency issues. Congress could raise the current payroll tax rate from 12.4% to 15.7% in 2035 to pay for Social Security disability benefits. Then, they could increase it to 16.9% by 2094 to replenish both trust funds.
- Raise the maximum taxable earnings amount. Right now, the government doesn’t deduct Social Security payroll taxes on any wages earned above $137,700 each year. That means someone whose annual salary is $137,700 pays the same in Social Security taxes as another who earns $750,000 annually. Raising the maximum tax threshold above this limit would shore up both trust funds considerably.
- Reduce benefit amounts gradually over time. Congress could reduce scheduled Social Security benefits by 21% to gradually restore depleted trust fund balances starting in 2035. Over time, that reduction in scheduled benefit payments would gradually increase to 27% by 2094.
You May Qualify for Legal Assistance
If you’re concerned about money running out before you get a chance at monthly benefits, don’t worry! Congress and the SSA still have time to find a way to put enough money into both trust fund programs. However, having a contingency-based lawyer file your disability claim triples your odds of winning benefits right away. You’ll never pay for confidential legal advice by phone from a local advocate near you. Those who qualify for legal assistance through this website typically get $10,000 in lump-sum backpay as well as monthly benefits. People who apply for disability on their own without assistance usually wait 24+ months for their first payment after the SSA denies their first application.
Ready to see if you may qualify? Click the button below to start your free disability benefits evaluation now.
Lori Polemenakos is Director of Consumer Content and SEO strategist for LeadingResponse, a legal marketing company. An award-winning journalist, writer and editor based in Dallas, Texas, she's produced articles for major brands such as Match.com, Yahoo!, MSN, AOL, Xfinity, Mail.com, and edited several published books. Since 2016, she's published hundreds of articles about Social Security disability, workers' compensation, veterans' benefits, personal injury, mass tort, auto accident claims, bankruptcy, employment law and other related legal issues.
Laura Schaefer is the author of The Teashop Girls, The Secret Ingredient, and Littler Women: A Modern Retelling. She is also an active co-author or ghostwriter of several nonfiction books on personal and business development. Laura currently lives in Windermere, Florida with her husband and daughter and works with clients all over the world. Visit her online at lauraschaeferwriter.com and linkedin.com.