Social Security: What Would Happen If the Trust Funds Ran Out?

William R. Morton, Analyst in Income Security
Wayne Liou, Analyst in Social Policy

November 23, 2016 Congressional Research Service

7-5700
www.crs.gov
RL33514

Summary The Social Security trustees project that, under their intermediate assumptions and under current law, the Disability Insurance (DI) trust fund will become depleted in 2023 and the Old-Age and Survivors Insurance (OASI) trust fund will become depleted in 2035. Although the two funds are legally separate, they are often considered in combination. The trustees project that the combined Social Security trust funds will become depleted in 2034. At that point, revenue would be sufficient to pay only about 79% of scheduled benefits.

If a trust fund became depleted, there would be a conflict between two federal laws. Under the Social Security Act, beneficiaries would still be legally entitled to their full scheduled benefits. However, the Antideficiency Act prohibits government spending in excess of available funds, so the Social Security Administration (SSA) would not have legal authority to pay full Social Security benefits on time.

It is unclear what specific actions SSA would take if a trust fund were depleted. After insolvency, Social Security would continue to receive tax income, from which a majority of scheduled benefits could be paid. One option would be to pay full benefits on a delayed schedule; another would be to make timely but reduced payments. Social Security beneficiaries would remain legally entitled to full, timely benefits and could take legal action to claim the balance of their benefits.

Maintaining financial balance after trust fund insolvency would require substantial reductions in Social Security benefits, substantial increases in income, or some combination of the two. The trustees project that following insolvency of the combined funds in 2034, Congress could restore balance by reducing scheduled benefits by about 21%; the required reduction would grow gradually to 26% by 2090. Alternatively, Congress could raise the Social Security payroll tax rate from 12.4% to 15.7% following insolvency in 2034, then gradually increase it to 16.8% by 2090.

Trust-fund insolvency could be avoided if outlays were reduced or income increased sufficiently. The sooner Congress acts to adjust Social Security policy, the less abrupt the changes would need to be, because they could be spread over a longer period and would therefore affect a larger number of workers and beneficiaries. Even if changes were not implemented immediately, enacting them sooner would give workers and beneficiaries time to plan and adjust their work and savings behavior.

This merely the summary.  There's much more in the pdf here.