Social Security funds are now expected to run dry in 2032, a year earlier than previously thought, which could lead to benefits being slashed.
The director of the Congressional Budget Office said money for the nation’s key retirement and disability support program will be exhausted in less than a decade, The Hill reported.
In the event that the two trust funds that contribute to Social Security benefits ran down to zero, current law would see a more than 20 percent reduction to benefits, CBO Director Phillip Swagel said. New tax revenue flowing into the funds each year would be enough to cover about 80 percent of current benefits, according to a Congressional Research Service report.
The main reason for the depletion date moving closer, Swagel said, is the cost-of-living adjustment (COLA) that raised benefits by 8.7 percent this year in response to inflation. That latest COLA was the largest since 1981, according to a CBO report.
“There was high inflation, and that resulted in a high COLA, and then those benefits affect the solvency of the [Social Security] trust fund,” Swagel said, adding, “On net, it led to a deterioration in the system, and that moves our exhaustion date just forward one year.”
As recently as December, the CBO projected that Social Security funds would hit zero in 2033.
While Swagel said there would be a 20 percent cut to benefits if funds ran out, that is just one possible outcome. If funds ran dry, two federal laws would conflict with each other, and it is not clear how the situation would be resolved, according to the CRS report.
Under one law, beneficiaries are legally entitled to their full payments and could sue the government for them. But under another law, the Social Security Administration would be barred from paying out money that it does not have.
If benefits were cut by about 20 percent, the share of benefits required to be cut would keep growing, reaching 26 percent by 2096, according to the CRS report.