September 7, 2021

Five Charts about the Future of Social Security and Medicare

On August 31, the Social Security and Medicare Trustees released their annual reports, which show that these vital programs are on an unsustainable path. In 2021 and all later years, Social Security (the combination of retirement and disability programs) will spend more than it takes in and by 2034, the combined Social Security Trust Funds are projected to be exhausted. Medicare’s Hospital Insurance (HI) Trust Fund will be depleted even sooner — in 2026. The aging of the population and increasing healthcare costs continue to put pressure on these programs and, without action, benefits in the future would be significantly reduced.

Below are five key takeaways from the reports.

  1. The two Social Security Trust Funds combined would be exhausted in 2034, at which point all Social Security benefits could be cut by 22 percent. Viewed individually, the Old-Age & Survivors Insurance trust fund is projected to be depleted in 2033 and lead to a 24 percent cut in benefits that year; the Disability Insurance trust fund is projected to be depleted in 2057, at which time benefits would be reduced by 9 percent.

Based on the Trustees' projections, combined Social Security benefits could be cut by 22 percent in 2034 without legislative action

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  1. There are currently 65 million Social Security beneficiaries, 71 percent of whom are retired workers. Beneficiaries also include disabled workers, as well as survivors, spouses, and children of beneficiaries.

Retired workers make up 71 percent of Social Security beneficiaries

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  1. While Medicare is funded in part by payroll taxes, the largest source of financing currently comes from the federal government’s general fund. The share of Medicare financed by the general fund is projected to continue to grow, which would put pressure on the federal budget.

The general fund is the largest source of financing for Medicare

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  1. One of the major drivers of Medicare and Social Security costs is the aging of the population. For example, as the large baby boom generation retires, both Social Security and Medicare’s Hospital Insurance program will have fewer revenue-contributing workers for each beneficiary.

As the population ages, fewer workers will be paying into Social Security and Medicare's Hospital Insurance program

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  1. As the population ages and healthcare costs rise, Social Security and Medicare will take up an increasingly large portion of the federal budget. As these programs continue to grow, other spending, including important investments in areas such as education and infrastructure, could be crowded out.

Social Security and Medicare represent a growing share of the federal budget

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Related: Social Security and Medicare Are Facing Serious Shortfalls

Image credit: Getty Images

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