The CBO warned that the Social Security retirement fund will be depleted by mid-2032 and that, without congressional reform, benefits from that fund would fall by about 26%

An analysis by the Committee for a Responsible Federal Budget (CRFB) of the projections from the Congressional Budget Office (CBO) warned that the Social Security retirement trust fund will run out of reserves by mid-2032.

CBO projection: insolvency in 2032 and a 26% cut

According to the analysis by the CRFB reported by Newsweek, the CBO projects that the Old-Age and Survivors Insurance (OASI) fund, which pays retirement and survivor benefits, will exhaust its reserves by around mid-2032. The CRFB estimates this will happen around the second quarter. At that point, payroll tax revenue would cover only about 74% of scheduled benefits, which, without congressional reform, would require a cut of approximately 26% to balance expenditures and revenue.

The CBO's projection is somewhat more pessimistic than that of the Social Security trustees themselves, who, in their annual June report, projected that the OASI fund would be depleted in the fourth quarter of 2032 and estimated an automatic cut of 22%.

Why it matters: more than 70 million beneficiaries

The program supports more than 70 million people. For some retirees, this is not a bonus—it is the bulk of their monthly income. That is why the depletion of the OASI fund is not an abstract debate. Without legislation to bridge the gap, benefits would no longer be paid at 100% and would be adjusted based on ongoing payroll contributions. Those who rely almost entirely on that check would be the first to feel the cut.

In remarks to Newsweek, financial literacy instructor Alex Beene of the University of Tennessee at Martin raised the same dilemma from two perspectives. Those who are already retired and rely heavily on Social Security might have to cut back on other expenses if their benefits drop by nearly a quarter. Those who are still working, on the other hand, might end up paying more taxes or accepting different rules for their future pensions.

Rising costs, stagnant incomes

The CRFB notes that the program's cost rose from 10.7% of taxable wages in 1990 to the current 15.0% and is projected to reach 16.5% in 2032, while revenues barely rose from 12.7% to 12.9%. That gap, the committee says, fuels the imbalance.

Kevin Thompson, CEO of 9i Capital Group, told Newsweek that, if action isn't taken soon, "these numbers will become increasingly dire" and that each new projection brings the timeline forward and increases the cuts.

Combined scenario: Disability fund cannot save the system

Even in a hypothetical scenario in which Congress would allow funds to be transferred from the Disability Insurance (DI) fund to the retirement fund, the combined funds would be depleted by 2033, resulting in a 23% cut for beneficiaries, according to the CBO.

Social Security trustees, for their part, project that the Disability Insurance (DI) fund will remain solvent throughout the 75-year projection period, but that the combined OASDI fund will be depleted in the third quarter of 2034.