Social Security isn't exactly broke. It has a multi-trillion-dollar trust fund balance, so don't believe it when you hear that the program is "out of money." That's simply not even close to the truth.
However, Social Security isn't exactly on the most stable financial footing and is running at a deficit, meaning that it is slowly depleting its reserves to make sure benefits keep getting paid. Here's what it lost in 2023, according to the recently released Social Security Trustees Report, and what Americans need to know about the long-term outlook for this crucial retirement program.
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Here's how much money Social Security lost in 2023
Each year, the Social Security Administration (SSA) board of trustees releases a report full of details about the program's financial condition and future projections. Here's how it did in 2023.
The short answer is that Social Security ran a deficit of $41.4 billion in 2023. This means that the amount it paid in benefits exceeded the program's income by this amount.
For a little more context, the program paid out about $1.39 trillion in 2023, and virtually all of this was in the form of benefit payments. It has three sources of income:
- Payroll taxes ($1.23 trillion in 2023).
- Interest on the program's reserves ($66.9 billion).
- Taxes on Social Security benefits paid to higher-income recipients ($50.7 billion).
It's also worth noting that Social Security has plenty of money in reserves (for now). At the end of 2023, its trust funds held $2.79 trillion.
What does the future hold?
One key point to keep in mind is that nobody -- not even the insiders who analyze Social Security and produce the annual trustees report -- knows exactly what will happen in the future. They can use the best information we have available, but there are many different variables that will determine what the future holds for the program.
For example, if birth rates are higher than expected, it would mean more people paying into Social Security in the future. If wage growth outpaces inflation, it would mean income from payroll taxes would grow faster than the benefits paid out. But if the opposites of these scenarios happen, it could accelerate the deficits.
Using the median assumptions for all of the scenarios that could play out, Social Security is expected to run deficits every year for the foreseeable future and run out of reserves in 2035.
However, there are two big caveats:
- First, there is a wide range of scenarios that could play out. Under the worst-case scenario analyzed by the SSA, the trust funds would be depleted by 2032. But under the best-case scenario (which the SSA calls the "low-cost assumptions"), it could last as long as 2080. Either of these extremes are highly improbable, but the point is that nobody knows for sure.
- Second, it's important to know that if Social Security runs out of reserves, it wouldn't simply stop paying benefits. Under the current projection of depletion in 2035, it would still be able to pay 83% of scheduled benefits. So the worst-case scenario would be an across-the-board 17% reduction.
What can be done?
The good news is that there is still time to act. While 2035 isn't quite as far away as it might sound, it does leave some time for Congress to act to bolster Social Security's long-term condition.
There are two main ways to fix it: increase taxes or decrease benefits. And each solution could take several forms. We could increase Social Security taxes on higher earners by creating a new payroll tax bracket for the highest-income workers. We could gradually phase in an increase to the current 6.2% payroll tax rate paid by employers and employees. We could reduce Social Security benefits for wealthy Americans or raise the full retirement age. These are just a few possibilities.
However, the point is that while Social Security is expected to run out of money, it isn't an insurmountable problem. And while most of us would ideally like Congress to address the problem sooner rather than later, history tells us that something more last-minute is likely to occur.
In fact, the last time Social Security got in trouble, reforms were passed just a few months before the program would have been unable to pay its promised benefits.
