The Latest Numbers On Social Security & Medicare

The 2025 Social Security (SS) and Medicare report was just released. Among other things the report provided the projected actuarial status of the four trust funds that finance those programs. Bottom line: while their future financial situation has not significantly deteriorated, it remains unsustainable.

For background, SS (which includes disability benefits as well as retirement benefits) is funded by payroll taxes, income taxes on benefits, and interest on two reserve funds: Old-Age and Survivors Insurance (OASI) and Disability Insurance (DI). Employers and employees each contribute 6.2% of earnings up to an annual maximum of $184.5K (in 2026). The amount of taxation on SS benefits depends on each beneficiary’s Adjusted Gross Income (AGI).

Medicare is supported by two trust funds, Hospital Insurance (HI) for Part A (Inpatient hospital and post-acute care) and Supplementary Medical Insurance (SMI) covering Parts B and D (physician services, outpatient services, and drug coverage). As with SS, most of Medicare’s income comes from payroll taxes (1.45% each from employees and employers). Additional funding comes from Part A premiums for those who haven’t met the premium-free qualifications as well as interest from the reserve funds.

In 2025 costs for SS exceeded income by about $160 billion, reducing the OASDI combined reserves to a little over $2.5 trillion. Medicare funds did better: HI actually increased its reserves by about $18 billion, while SMI overspent by only about $2 billion. (The word “only” when applied to a $2 billion loss might be construed as an understatement, but the SMI trust fund is in relatively good shape with about $168 billion of reserves.)

What is the impact of all this on the future of these programs? Without any changes to funding sources the OASI fund is expected to be depleted by the end of 2032. That would mean SS retirement benefits would potentially be cut at that time to about 78% of what had been promised. Disability benefits, on the other hand, should last at least through 2100.

For Medicare, the HI trust will potentially be depleted in 2033, reducing future hospital benefits to 89% afterwards. However, SMI is expected to continue indefinitely. The report does not address how this would affect Medigap or Medicare Advantage premiums, but I would guess they’d probably increase sharply.

Another way to look at the costs of these programs is to express them as a percentage of GDP. In 1970 SS represented a little over 3% of GDP, while Medicare was under 1%. In 2025 SS had risen to over 5% of GDP and Medicare had reached 4%. The report anticipates Medicare to exceed the cost of SS starting in 2036.

The source of the problem is primarily demographic. The pool of retirees is increasing while the pool of workers providing the bulk of the funding is shrinking. And this is not a partisan political issue. In 2024 the National Institute on Retirement Security commissioned a poll about Americans’ views on retirement. The results show that respondents’ viewpoints are quite consistent regardless of political affiliation. In response to the question “How concerned are you that you won’t be able to achieve a financially secure retirement,” Democrats answered 57% and Republicans followed closely with 54%. And both felt the rising cost of healthcare in retirement is the biggest factor in making retirement harder (72% Democrats and 71% Republicans).

There are still numerous ways to deal with the problem without cutting benefits (e.g. increasing payroll taxes and/or limits, changing reserve trust fund investment policies, increasing benefit taxation, adding other sources of revenue). But the longer policymakers delay, the more painful the solution will become.

Do we have the necessary leadership in Washington right now to take this on, or will politicians continue to kick this can down the road until it becomes a crisis?

Here’s a link to the report: https://www.ssa.gov/oact/trsum/

(Additional source: https://www.nirsonline.org/reports/partyviews2024/)