A depletion of Social Security and Medicare reserves does not mean that benefits stop altogether, because there is an assumption that tax revenues will continue to be collected. Under the current pre-pandemic projections, continuing tax revenues would allow Social Security to pay 79% of scheduled benefits in 2035 and Medicare could pay 90% of total hospital insurance benefits in 2026.
The trustee reports showed few other changes in the federal benefit programs' finances, and it is important to understand that when they run out of money, the program will rely mainly on revenue from payroll taxes.
The program will be 91% funded for the next 25 years, 85% funded for the next 50 years and 82% funded for the next 75 years, according to the report. The figures are based on the two trust funds combined, although each is earmarked for specific purposes: one for the Old-Age & Survivors Insurance and one for Disability Insurance. Individually, the trustees project the reserves for OASI funds will be depleted in 2034 and the DI funds will be depleted in 2065.
“I doubt either [fund] will ever stop making payments,” said Allan Katz, president of Comprehensive Wealth Management in Staten Island, N.Y. “That would be a political nightmare for whoever is an elected official at the time if it did happen. As long as the government can tax, it will be fine.”
“Also keep in mind, the forecasts don't factor in all of the elderly dying of Covid-19, which will decrease payments from the funds,” Katz added.
Lawmakers have made little progress in fixing the insolvency issue because of the cost and political divisiveness. While some parties think taxes should be increased to shore up the programs, others suggest there should be benefit cuts to future retirees. Proposals to bolster the program include the Social Security 2100 Act, which is being sponsored by Rep. John Larson and Sen. Richard Blumenthal, two Democrats from Connecticut, and Sen. Chris Van Hollen, a Democrat from Maryland.
The 2020 Social Security and Medicare trustee reports are available here.