Social Security and Medicare: The Clock Is Ticking
A recent survey showed that only about half of workers and six in 10 retirees are confident that Social Security and Medicare will provide the same value in the future.1 That’s not surprising. For years, detailed annual reports released by the Trustees of the Social Security and Medicare trust funds have warned that the trust funds would be depleted in the not-too-distant future. The most recent Social Security and Medicare Trustees Reports, released on June 9, 2026, show that Social Security and Medicare continue to face significant financial challenges.
The Trustees of both programs continue to urge Congress to address these financial shortfalls soon, so that solutions will be less drastic and may be implemented gradually. Despite the challenges, it’s important to keep in mind that neither of these programs is in danger of collapsing completely.
More retirees and fewer workers
The fundamental problem facing both programs is the aging of the American population. Today’s workers pay taxes to fund benefits for today’s retirees, and with lower birth rates and longer life spans, there are fewer workers paying taxes and more retirees receiving benefits for a longer period of time. In 1960, there were 5.1 workers for each Social Security beneficiary; in 2025, there were 2.6, a number that is projected to drop to 2.2 by 2045.
Dwindling trust funds
Payroll taxes from today’s workers, along with income taxes on Social Security benefits, go into interest-bearing trust funds. In 2025, payroll taxes accounted for about 91% of total income to the Social Security trust fund (OASI), taxation of Social Security benefits accounted for 5%, and interest income on trust fund reserves accounted for 5% (total does not equal 100% due to rounding).
During times when payroll taxes and other income exceeded benefit payments, these funds built up reserve assets. But now the reserves are being depleted as they are used to supplement payroll taxes and other income to meet scheduled benefit payments.
This year’s report projects that the enactment of the One Big Beautiful Bill Act (OBBBA) will affect both the Social Security (OASDI) and Medicare Hospital Insurance (HI) trust funds. OBBBA made permanent lower income tax rates and adjusted tax brackets enacted under the 2017 Tax Cuts and Jobs Act. It also increased and made permanent the larger standard deduction from the 2017 Act and created an additional temporary standard deduction for people age 65 and older. Consequently, less income tax will be paid on Social Security benefits, resulting in lower levels of revenue for both trust funds.
Outlook for Social Security
Social Security consists of two programs, each with its own trust fund. Retired workers and their families and survivors receive monthly benefits under the Old-Age and Survivors Insurance (OASI) program; disabled workers and their families receive monthly benefits under the Disability Insurance (DI) program.
The OASI Trust Fund reserves are projected to be depleted in the fourth quarter of 2032, one quarter earlier than projected last year, at which time incoming revenue would pay only 78% of scheduled benefits. Reserves in the much smaller DI Trust Fund are not projected to be depleted during the 75-year period ending in 2100.
Under current law, these two trust funds cannot be combined, but the Trustees also provide an estimate for the hypothetical combined program, referred to as OASDI. This would extend full benefits until the third quarter of 2034, unchanged from last year’s report, at which time incoming revenue would pay only 83% of scheduled benefits.
Outlook for Medicare
Medicare also has two trust funds. The Hospital Insurance (HI) Trust Fund pays for inpatient and hospital care under Medicare Part A. The Supplementary Medical Insurance (SMI) Trust Fund comprises two accounts: one for Medicare Part B physician and outpatient costs and the other for Medicare Part D prescription drug costs.
The HI Trust Fund will contain surplus income through 2027 but is projected to be depleted in the second quarter of 2033, one quarter earlier than projected in last year’s report. At that time, revenue would pay only 89% of scheduled benefits. Overall, projections of Medicare costs are highly uncertain.
The SMI Trust Fund accounts for Medicare Parts B and D are expected to have sufficient funding because they are automatically balanced through premiums and revenue from the federal government’s general fund, but financing will need to increase faster than the economy to cover expected expenditure growth.
Possible fixes
If Congress does not take action, Social Security beneficiaries might face a benefit cut after the trust funds are depleted, based on this year’s report. Any permanent fix to Social Security would likely require a combination of changes, including some of these.
- Raise the Social Security payroll tax rate (currently 12.4%, half paid by the employee and half by the employer). An immediate and permanent payroll tax increase to 16.65% would be necessary to address the long-range revenue shortfall (or to 17.30% if the increase starts in 2034).
- Raise the ceiling on wages subject to Social Security payroll taxes ($184,500 in 2026).
- Raise the full retirement age (currently 67 for anyone born in 1960 or later).
- Change the benefit calculation formula and/or use a different index to calculate the annual cost-of-living adjustment.
- Tax a higher percentage of benefits for higher-income beneficiaries.
Addressing the Medicare shortfall might necessitate a combination of spending cuts, tax increases, and cost-cutting through program modifications.
Based on past changes to these programs, it’s likely that any future changes would primarily affect future beneficiaries and have a relatively small effect on those already receiving benefits. While neither Social Security nor Medicare is in danger of disappearing, it would be wise to maintain a strong retirement savings strategy to prepare for potential changes that may affect you in the future.
All projections are based on current conditions, subject to change, and may not come to pass.