Social Security is heading for trouble, and workers and seniors alike will be affected by what happens when it arrives.
Social Security took in a whopping $1.351 trillion last year, and it paid out $1.385 trillion in benefits to retirees, disabled workers, and their families. If that math looks a little funny to you, that’s because it is.
Take out another $7 billion in administrative expenses, and the program’s trust funds shrank by $41 billion in 2023, and we expect these deficits to continue over the coming years. In the near term, this won’t affect Social Security’s beneficiaries, but the long-term consequences could take a huge toll on everyone who counts on their benefits to make ends meet.
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What happens when the trust funds run out?
Social Security still had over $2.78 trillion in its trust fund reserves at the beginning of 2024. This money is crucial for helping the government cover benefits above what it takes in annually in Social Security payroll taxes and Social Security benefit taxes for retirees. It sounds like a lot of money, but when the government is paying out trillions annually in benefits, the reserves look a lot less adequate.
The latest Social Security Trustees Report estimates that the program’s trust funds will be fully depleted in 2035. After that, Social Security will only be able to pay out 83% of scheduled benefits going forward.
Benefit cuts aren’t a given, though. Social Security has faced solvency issues in the past, and the government stepped in to remedy the problem before anyone’s benefits took a hit. It’s likely this will happen again, but right now, we don’t know what the solution will look like or when it’ll take effect.
What does this mean for retirees?
Benefits will continue as scheduled for the next several years, but it’s important to keep an eye on future changes to Social Security. Cuts remain a possibility, though they may not be as severe as the 17% cut mentioned in the Trustees Report.
The government may also decide to keep Social Security afloat by raising taxes. This would force workers to get by on less take-home pay. It could also hurt retirees if Social Security benefit taxes go up as well. Then, you may lose a greater portion of your checks to taxes rather than in the form of an overt cut. Either way, you’d have fewer benefits to spend on your own expenses.
This is why it’s important to be as financially independent as possible in retirement. Build your supply of personal savings and manage your withdrawals carefully so you can stretch your nest egg for as long as possible. You might also consider taking on a part-time job in retirement to provide you with a steady paycheck to supplement your benefits. You may qualify for some other government benefits as well to help with your essential costs, like groceries and medical care.
When the government eventually announces its plan for Social Security, that’ll be the time to give your retirement plan a hard look. Once you know how much you’ll get from the program going forward, you can figure out how much you need to save on your own and devise retirement income strategies to help you cover your expenses.
