The trust funds that help finance Social Security’s benefit payments to retirees are on track to be tapped out in the next decade, which could deliver a major blow to retirees’ finances.

Social Security is funded through the collection of payroll taxes, and that’s augmented by two major trust funds, Old-Age and Survivors Insurance in addition to Disability Insurance. Those trust funds grow when the payroll tax collections exceed benefit payments, but they have been dwindling due to the aging of America’s population and are projected to be tapped out in a decade. Once the trust funds are depleted, incoming payroll taxes will be the sole source of funding for benefits, and under current law, automatic cuts would kick in to match benefits paid to incoming revenue.

Marc Goldwein, senior vice president and senior policy director for the Committee for a Responsible Federal Budget (CRFB), told FOX Business in an interview that the trust funds are "tremendously endangered." He pointed to the nonpartisan think tank’s research that showed a typical dual-income couple retiring in 2033 would see a benefit cut of 23% or $17,400 in current-dollar annual benefits, while a single-income couple would see benefits cut by $13,100.

"We’ve known since about 1990 that Social Security was sort of heading towards insolvency by the mid-2030s," Goldwein said. "But it went from something you got to save for your grandkids, to something you’ve got to save for your kids, to something that you now need to save for your grandparents because today’s youngest retirees will be 72 years old when the program goes insolvent. Today’s 57-year-olds will be reaching their normal retirement age when it’s insolvent."

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The problem isn’t limited to Social Security, as Medicare’s Hospital Insurance (HI) trust fund is also on track to being tapped out within a decade.

Earlier this year, the Congressional Budget Office (CBO) found that Social Security’s Old-Age and Survivors Insurance trust fund would be depleted in fiscal year 2032, while its Disability Insurance trust fund would be exhausted the following year. If the two trust funds were combined, they would be exhausted in FY2033, when Medicare’s Hospital Insurance trust fund would also be tapped out, which could have an impact on access to health care.

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"With Medicare, what would happen, we think, is payments would be delayed to providers, so hospitals wouldn’t be getting reimbursed on time," Goldwein said, noting that the reimbursement delays would likely lengthen over time. "Would you accept insurance if you didn’t know if or when you’re going to get paid? So we don’t know exactly what will happen in the case of Medicare, but I think what you’re likely to see is a disruption of available health care services."

The timing of Social Security and Medicare trust funds exhaustion means that the issue will become increasingly prominent for whichever presidential hopeful wins the 2024 election, as there will be limited time to address the issue while giving current and future retirees time to plan for any changes to the programs.

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"You can’t have a smart plan to save Social Security that starts a year or a month before insolvency, you need some lead time to let people plan and adjust to face things like that. So it’s really vital that the next president tackle this issue," Goldwein said, noting that the current frontrunners, President Joe Biden and former President Donald Trump, have each said they won’t touch Social Security.

The CRFB is proposing a bipartisan fiscal commission to take a holistic look at the U.S. government’s finances and consider ways to address America’s looming fiscal challenges. Goldwein noted that approach helped to save Social Security on two prior occasions, in 1977 and in 1983, when the Greenspan Commission facilitated bipartisan negotiations between President Ronald Reagan and House Speaker Tip O’Neill that ultimately extended the life of the trust fund for 50 years.

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"Commissions are the worst idea, except for all of the other ideas, and I think it’s probably our last, best hope to save these programs right now," he said. "I don’t particularly care what form it takes – the TRUST Act is an excellent piece of bipartisan legislation that would create special rescue committees for the different trust funds. You could also look to the Sustaintable Budget Act, which is more of a broad fiscal commission that’s kind of like a Simpson-Bowles approach." 

The details matter, of course, but what’s most important is that it’s bipartisan, that it’s bicameral, and that it puts all parts – both spending and revenue – on the table," Goldwein added.

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Goldwein said that reforms to Social Security and Medicare could yield benefits including growth in the economy and Americans' incomes as well as savings in health care costs if they’re done properly.

"If we do Social Security and Medicare reform right, there is actually a huge upside. We’ve shown that thoughtful Social Security can meaningfully grow the economy and raise incomes. And thoughtful Medicare reform can actually lower health care costs, not just for the government, but for Medicare beneficiaries and even people in the private sector through spillover effects," Goldwein said.