What Americans Need To Know About the 2025 Social Security Trustees’ Report
As a new report makes clear, we're running out of time to keep Social Security solvent
Today the Social Security and Medicare trustees released the 2025 annual reports on the financial status of the two programs. In a time when Americans find it increasingly difficult to identify credible and objective information sources, the trustees and their staff are to be commended for producing the latest in a long series of informative reports.
Focusing just on this year’s Social Security report, here are a few important takeaways.
1. Social Security is going insolvent. According to the trustees, Social Security now faces a financing shortfall equal to roughly 22% of its scheduled benefit obligations (which include future scheduled payments for individuals who are already receiving benefits today).
2. The financing shortfall is massive and growing increasingly difficult to correct. Although press reports tend to focus on the trust funds’ projected date of depletion, the specific date is not really what matters. What matters is the size of the shortfall and whether it still remains practicable to close it. This is increasingly open to question as lawmakers procrastinate and the shortfall grows. Already, the shortfall is of such a size that closing it now would require generating savings equal to an across-the-board benefit cut of roughly 27% in the benefits going forward from this year indefinitely into the future. Because lawmakers would likely never enact such sudden benefit cuts and would instead gradually phase in any changes, the eventual percentage reductions would almost certainly need to be even larger. If lawmakers were to delay action to the point that Social Security trust fund depletion became imminent, even complete elimination of all new benefit claims would be insufficient to prevent program insolvency.
3. Social Security solvency matters. Americans should understand that the trustees’ reports are not merely an abstract accounting exercise. They tell us what is necessary to maintain the type of Social Security program Americans have come to depend upon and currently expect to continue. Specifically, that means a program in which, unlike welfare programs, participating workers feel protected against sudden, arbitrary benefit cuts because they paid for their benefits. Workers’ contributions to Social Security are currently tracked in dedicated trust funds, which under law can only be used for program benefit payments. If federal lawmakers give up on keeping Social Security solvent, this idea of a self-financing system, funded by workers’ payroll tax contributions, must be abandoned. Thereafter, Social Security benefits would be reduced to whatever lawmakers choose to allocate from the government’s general fund, in competition with every other welfare program.
4. Social Security cost growth exceeds sustainable rates, and is driven by demographics and automatic benefit increases. Table IV.B1 from the new report shows that under current law, total Social Security costs are growing faster than American workers’ earnings that are being taxed to finance the program. In 2008, the cost of paying all Social Security benefits was less than 12% of workers’ taxable wages. This year, costs are surpassing 15% of workers’ taxable wages, and without reforms these burdens will surpass 17% in 2051 and 18% in 2064. This cost growth is driven by two factors: one is demographics—i.e., the rise in the number of beneficiaries relative to taxpayers, as birth rates have declined since the baby boom, and as lifespans have increased without commensurate adjustments to Social Security eligibility ages. The other factor is automatic benefit increases written into law in the 1970s, which exceed what can be financed within a stable tax rate. Program finances cannot be rendered sustainable until lawmakers implement a way to moderate this cost growth.
5. The Social Security Fairness Act made things worse. Last December, lawmakers enacted the misnamed “Social Security Fairness Act” (SSFA), which grants participants (mostly government workers) in state and local pension plans windfall Social Security benefits for which they didn’t pay to finance. In addition to making the system less fair, these windfall payments will hasten Social Security’s insolvency. Fixing the financial damage will require either repealing the SSFA or imposing additional costs on other program participants. The SSFA was the biggest adverse development for Social Security finances. Other factors that changed the projections for the worse included incorporating more realistic assumptions for fertility rates and labor compensation (last year’s report assumed each of these factors would increase more rapidly than was likely realistic).
6. Even if kept solvent, Social Security currently stands to make younger generations poorer than they otherwise would be. According to Table VI.F2 of the report, Social Security participants to date have been promised benefits far surpassing what their own tax contributions could fund, by an amount equal to 3.8% of all future taxable earnings of American workers. In other words, under current law young workers entering the workforce today will on average be made poorer by an amount equal to 3.8% of their lifetime earnings, to prop up the Social Security program. The only way to fix this is if current participants contribute something more to Social Security solvency. Needless to say, the worst possible thing to do would be to legislate additional benefit increases for current participants that they didn’t pay for, locking in even larger income losses for younger workers.
7. Fixing Social Security will require a blend of benefit growth moderation, revenue increases and eligibility age changes. A quick review of the size of the shortfall underscores this reality. Lawmakers clearly will not want to reduce future benefits by 27% across the board, the amount necessary to maintain solvency without tax increases. Nor will they wish to permanently increase the Social Security payroll tax from its current 12.4% to 16.05% this year, the amount necessary to achieve solvency while avoiding benefit growth restraints. It is additionally unrealistic that eligibility ages should remain fixed where they are as Americans live ever longer lives. Such a failure to gradually adjust eligibility ages would require that American workers face much higher tax burdens while having less income security in retirement. In order to save Social Security’s solvency as well as its capacity to reasonably serve future Americans, adjustments in all three categories are urgently needed.
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