A new report from the Biden administration’s Treasury Department indicates that Social Security will begin to reach insolvency sooner than predicted.
In the report released Friday, Treasury analysts predict that payments to retirees will fall below fulfillment by 2033, one year earlier than previously predicted. If income into Social Security remains at current levels, recipients can expect to receive just 77 percent of their owed benefits beginning that year.
A number of demographic trends have created the looming social safety net crisis including lower birth rates, weakened labor productivity rates and a lower Gross Domestic Product (GDP) for the United States. Social Security is primarily funded by contributions from workers as part of their regular paychecks. In return, those workers can expect payouts from the program beginning at age 65.
With an aging population, the U.S. is experiencing an excessive weight on its social safety net programs compared to other developed nations with younger workforces. The Baby Boomer generation, one of the largest in modern history, has been steadily aging into eligibility for Social Security and outpacing the ability for younger workers to match their payouts with equal rates of contributions.
Last year, Social Security accounted for 20 percent of the entire federal budget, by far the largest domestic expenditure and twice what the U.S. spends on its military.
Treasury analysts reached their conclusion in part by relying on higher interest rates which have caused consumers to pause discretionary spending, a blow to the country’s overall GDP. Core inflation, based on consumption of food and energy, ticked down to 5 percent in February although far exceeds the ideal rate of 2 percent that economists would like to see.
Known as the third rail of politics, Social Security has seen previous reforms fail to reach consensus among Republicans and Democrats in Congress. Polling last year suggests strong bipartisan support for several reforms, including raising the program’s payroll tax cap, reducing benefits for high earners, and gradually raising the retirement age.