Social Security, Medicare Finances Worsen, Bringing Funding Cliffs Sooner

The long-term financial health of Social Security and Medicare worsened last year, according to the federal government’s latest projections, accelerating the funding cliffs for the key safety-net programs in the coming years.

Annual reports released by the Treasury Department on Monday show that Social Security’s reserve funds, if combined, would run out of money to fully pay beneficiaries in 2034 — a year sooner than projected last year. And the trust fund that pays Medicare’s hospital bills would be depleted in 2033 — three years earlier than expected.

The change to the financial outlook for Social Security’s reserves was primarily driven by a bipartisan expansion of benefits to millions of public sector workers that President Joe Biden signed into law in January. In addition, federal actuaries estimated that fertility rates would remain lower for longer and revised downward economic projections that suggest more sluggish long-term wage growth.

Medicare’s finances worsened, according to the reports, because of higher than anticipated expenditures and increased expectations about future spending on hospital and hospice care.

The latest projections come amid bitter political and legal fights over the Trump administration’s early efforts to crack down on alleged fraud in Social Security programs and give Elon Musk’s DOGE operation access to sensitive data. The Trump administration has slashed the Social Security Administration’s workforce.

“This data underscores the need for lawmakers to take action to support the long-term viability of these programs,” said Treasury Secretary Scott Bessent, who serves as the managing trustee of the funds. He said the Trump administration would “continue to root out waste, fraud, and abuse across federal agencies to ensure quality service for beneficiaries and responsible stewardship of taxpayer funds.”

On the campaign trail, Donald Trump vowed to eliminate taxes on Social Security benefits. But Congressional Republicans have so far not gone that far in drafting their massive policy bill. House Republicans’ plan would give senior citizens an extra $4,000 tax deduction, and a Senate proposal calls for a $6,000 deduction.

About 68 million people received monthly Social Security benefits in 2024, and Medicare provides health insurance coverage to 67.6 million people.

Both the Social Security and Medicare programs pay out more in benefits each year than the government brings in from the dedicated payroll taxes that fund the safety-net programs.

That shortfall requires the programs to dip into reserves to cover the difference. But once those trust funds are depleted, the programs won’t be able to fully pay benefits, unless Congress acts.

According to the latest projections, Social Security’s trust funds, if combined, would run out of money to fully pay benefits in 2034. At that point, if Congress fails to act, the program would have only enough money to pay about 81 percent of scheduled benefits.

When Medicare’s trust fund for hospital insurance is projected to deplete its funding in 2033, the program would be able to pay out 89 percent of scheduled benefits, according to the report.