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Social Security projected to cut benefits in 2035 barring a fix

Social Security overpayment policy updated
Social Security Administration updates overpayment policy | 60 Minutes 00:59

The timeline to replenish Social Security is being extended. The federal retirement program said Monday it may not need to cut benefits until 2035, one year later than previously forecast, because of stronger performance by the U.S. 

The new projection, from the Social Security Board of Trustees' annual report, amounts to "good news" for the program's 70 million beneficiaries, said Martin O'Malley, Commissioner of Social Security, in a statement. Even so, he urged Congress to take steps to shore up the program to ensure it can pay full benefits "into the foreseeable future."

Social Security relies on its trust funds to provide monthly checks to beneficiaries, with the funds primarily financed through the payroll taxes that workers and businesses provide with each paycheck. But the funds' reserves are drawing down because spending is outpacing income, partly due to the wave of baby boomer retirements and an aging U.S. population. 

Experts underscore that if the trust funds are depleted, benefits won't suddenly disappear. Instead, Social Security beneficiaries will face a cut to their monthly checks, with the agency on Monday projecting that recipients would lose 17% of their current benefits.

That would be painful for millions of retired and disabled Americans, but it represents a modest improvement from last year, when the Social Security Administration projected that benefits could be slashed by 23% if the trust funds reached the point of depletion.

Advocates for older Americans praised the improved outlook, while pressing Congress to take action on shoring up the program. 

"Congress owes it to the American people to reach a bipartisan solution, ensuring people's hard-earned Social Security benefits will be there in full for the decades ahead," AARP CEO Jo Ann Jenkins said in a statement. "The stakes are simply too high to do nothing."

Lawmakers have yet to take action despite being aware of the looming funding crisis, noted Maya MacGuineas, president of the Committee for a Responsible Federal Budget, a think tank that focuses on the federal fiscal policies, in a statement.

"Every year we get closer to the deadline, we seem to get further away from the solutions," she said. Without a fix, "Social Security's retirement trust fund will be insolvent when today's 58-year-olds reach the normal retirement age and today's youngest retirees turn 71."

Economic boost

O'Malley attributed the improved Social Security forecast to the stronger economy, pointing to what he called "impressive wage growth, historic job creation, and a steady, low unemployment rate." In other words, a healthy job market is resulting in more Social Security taxes going into the funds' coffers.

The report comes as Social Security's financial outlook has become a political lightning rod, with Republicans proposing that the retirement age be raised — effectively cutting benefits for millions of current workers — and former President Donald Trump indicating he would be open to cuts to Social Security and Medicare. 

Democrats argue that there are other ways to fix the program without cutting benefits, such as raising the cap on payroll taxes. Currently, individual income over $168,600 is exempt from the Social Security payroll tax. 

Medicare's "go broke" date

Meanwhile, Medicare's go-broke date for its hospital insurance trust fund was pushed back five years to 2036 in the latest report, thanks in part to higher payroll tax income and lower-than-projected expenses. Medicare is the federal government's health insurance program that covers people age 65 and older and those with severe disabilities or illnesses. It covered more than 66 million people last year, with most being 65 and older.

Once the fund's reserves become depleted, Medicare would be able to cover only 89% of costs for patients' hospital visits, hospice care and nursing home stays or home health care that follow hospital visits.

In a statement on Monday, President Joe Biden credited his administration's economic policies for Social Security and Medicare's stronger outlook. 

"Since I took office, my economic plan and strong recovery from the pandemic have helped extend Medicare solvency by a decade, with today's report showing a full five years of additional solvency," he said. "I am committed to extending Social Security solvency by asking the highest-income Americans to pay their fair share without cutting benefits or privatizing Social Security."

—With reporting by the Associated Press.

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