Social Security's unfunded liabilities total $12.5 trillion in present-dollar terms over a 75-year timeframe, the administration's trustees reported Thursday, an increase of $1.2 trillion from last year's estimate.
The trustees report showed that Social Security's combined trust fund can only pay scheduled benefits through 2034, a projected date that is unchanged from a year ago. Medicare's trust fund, though, is in better shape than previously estimated and will run out a year later than previously anticipated, in 2029.
At those dates, beneficiaries would face the prospect of an immediate cut in benefits unless policy were changed in some way to avoid that outcome. Social Security beneficiaries would see a cut of about a quarter in their checks, which average about $1,360 a month at the end of 2016 for retirees.
In a statement, Treasury Secretary Steven Mnuchin said that the programs are secure and will remain secure, but that "tens of millions of Americans rely on these programs and it is important that we ensure their long-term stability."
In order to preserve the programs, he said, "we should focus on strengthening the economy today," as compounding growth would ease the projected shortfalls. To that end, he called for enacting tax and regulatory reforms.
President Trump has declined to propose cost-saving reforms to Social Security retirement or Medicare. Many congressional Republicans, including House Speaker Paul Ryan, have called for reforming Medicare through a premium support model.
"We must act to fix our entitlement programs and chart a course to put them back on strong fiscal footing," said Orrin Hatch of Utah, the chairman of the Senate Finance Committee.
Social Security's retirement trust fund is funded through 2035, the same projection as last year. The exhaustion date for disability benefits, however, has been moved back by five years, reflecting lower claims, a senior administration official said. Labor Secretary Alexander Acosta said that it was "dangerous to speculate" about why fewer people are seeking disability, but suggested nevertheless that it might have to do with the recent improvement in labor markets.
To close the 75-year gap in funding for Social Security liabilities through payroll taxes alone, according to the trustees, the government would have to permanently raise the rate 2.76 percentage points to 15.16 percent. Alternatively, benefits would need to immediately be cut by 17 percent for all of Social Security's 61 million beneficiaries.
Spending on Social Security and Medicare is expected to grow in the years ahead, according to the Congressional Budget Office, both because the population is aging and because healthcare costs are set to grow faster than economic output.
The baby boom generation began reaching retirement age in 2011 and will continue to retire in large numbers until 2029, at which point roughly one in five Americans will be seniors, according to the Census Bureau.
In the 1960s, there were four workers for each Social Security benefit. Today, that ratio is under three, and it is projected to fall to two during the 75-year timeframe.
Acosta said that the administration would seek to bring more people into the labor force through workforce training and other initatives, improving that ratio. "Helping workers enter and remain in the workforce is the right thing — not only for workers, but also for the nation" and the trust funds, Acosta said.