At the end of August 2021, a new report was released that showed Social Security is projected to run out of money in 2033, one year earlier than previous calculations. With that deadline only 12 years away it is likely to impact everyone who is not already enrolled in Social Security as well as many who are. What will happen when the fund runs out? You may have heard that benefits will stop being paid once the fund runs out, but that is not likely to happen. We have laid out some of the changes that are likely to be made to Social Security over the next 12 years or after the fund runs out around 2033.
Reduced Benefits
If no changes are made before the fund runs out, the most likely result will be a reduction in the benefits that are paid out. If the only funds available to Social Security in 2033 are the current wage taxes being paid in, the administration would still be able to pay around 75% of promised benefits. While a 25% reduction in benefits could significantly hurt the retirement plans of those who are relying on their Social Security benefits, it is far less damaging than the program being shut down entirely.
With the potential for benefits to be reduced, some retirees may be tempted to apply for their benefits early to receive as much as they can before the fund runs out. However, if you start taking your benefits as soon as allowed, they will be reduced to 70% of your full-retirement age benefit. Comparing this to the 75% that could be received even after the fund runs out, you would still be hurting your retirement by applying early.
Increased Wage Taxes
To avoid benefit reductions, congress may vote to increase the Social Security taxes charged on employee wages. If the increase were put in place immediately, the employee portion of the tax would need to increase from 6.2% to 8%. This would represent an additional $900 in taxes paid annually for an employee making $50,000 per year.
Another proposal in wage taxes that has become popular in recent years is an additional tax on high earners. Rather than increasing the social security tax of 6.2% on all payers, this would implement a new tax on wage income above $400,000 to help stabilize the social security fund.
Increased Full Retirement Age
Even if the fund does not run out, the full retirement age needed to receive your full Social Security benefit is likely to go up in the future as life expectancies increase. Since the Social Security program was first started the average life expectancy has increased 7 years and yet the full age retirement for Social Security has only increased 2 years. As the fund begins to run out, it is likely that the full retirement age will be raised even further, along with harsher benefit cuts for those who apply early.
Summary
While Social Security benefits are unlikely to be completely eliminated 12 years from now, there is a strong possibility that they will be reduced significantly if revenues are not increased in the next few years. To make sure that your retirement plan is secure, you should analyze your retirement income stream under the assumption that your Social Security benefits will be reduced and determine what changes need to be made if that happens.
FAQs
By law, Social Security cannot borrow like other government agencies can. If the trust fund runs out it could pay benefits only from money it's collecting. That would mean retirees would face around a 23% benefits cut as Social Security would collect only enough to pay out 77% of promised benefits.
Will Social Security exist in 30 years? ›
Social Security will still exist after 2035, according to the trustees' findings, but retirees will only receive 83% of their full benefits. Preventing that shortfall requires congressional action and would likely involve trimming benefits or increasing the Social Security payroll tax.
What will replace Social Security? ›
In the proposals presented to the Commission, the use of retirement bonds--and annuities based on bond accumulations- would also replace the entire benefit structure of Social Security for the future.
Why am I paying into Social Security if it's going to run out? ›
The money you pay into Social Security isn't set aside for you personally. These current taxes plus the money in the Social Security trust fund pay for everyone's benefits. There are fewer workers left to contribute to retirement benefits as the U.S. population ages and more Baby Boomers retire.
Could Social Security go away? ›
As long as workers and their employers are paying FICA taxes, there will always be a source of money to pay benefits for retirees and beneficiaries. That's the reason Social Security will never completely run out of money and will never be bankrupt.
Will millennials get Social Security? ›
Millennials may receive less Social Security than older generations, as the reserve of funds gets depleted due to a declining number of U.S. workers contributing to the benefits pool. Millennials can fully retire at age 67, but to get the most out of Social Security benefits, you should wait until age 70 to collect.
Will Gen Z get Social Security? ›
Your benefits are based on your highest 35 years of earnings (even if you don't work some of those years) and the age you are when you begin taking Social Security payments. To be eligible for full retirement benefits, millennials and Gen Zers must be 67 when they retire.
Which president borrowed the most from Social Security? ›
Bush, like other former presidents, borrowed from the Social Security asset reserves to finance government expenditures. The amount that Bush borrowed was $708 billion, which is nearly half of the $1.37 trillion that the statement claimed the Bush regime borrowed.
At what age is Social Security no longer taxed? ›
Social Security can potentially be subject to tax regardless of your age. While you may have heard at some point that Social Security is no longer taxable after 70 or some other age, this isn't the case. In reality, Social Security is taxed at any age if your income exceeds a certain level.
What is the 10 year rule for Social Security? ›
The number of credits you need to receive retirement benefits depends on when you were born. If you were born in 1929 or later, you need 40 credits (10 years of work). If you stop working before you have enough credits to be eligible for benefits, the credits will remain on your Social Security record.
Social Security offers a monthly benefit check to many kinds of recipients. As of December 2023, the average check is $1,767.03, according to the Social Security Administration – but that amount can differ drastically depending on the type of recipient. In fact, retirees typically make more than the overall average.
What is the 5 year rule for Social Security? ›
The Social Security five-year rule is the time period in which you can file for an expedited reinstatement after your Social Security disability benefits have been terminated completely due to work.
What changes are coming to Social Security in 2025? ›
More than half of female beneficiaries over age 60 will receive benefits based solely on their own work in 2025. By 2095, over 70 percent of women will receive such benefits. Over one-third of women will be dually entitled (receive a benefit based both on their own and their spouse's work) in 2025.
What is the average Social Security benefit per month? ›
The average monthly payment of $1,782 drops by 30% during the first month of eligibility to $1,247.40. Here's the dollar amount, and the percentage of the full benefit it represents, for every month they wait after that.
What is the highest Social Security payout per month? ›
The maximum Social Security benefit at full retirement age is $3,822 per month in 2024. It's $4,873 per month in 2024 if retiring at age 70 and $2,710 if retiring at age 62. A person's Social Security benefit amount depends on earnings, full retirement age and when they take benefits.
What will Social Security be like in 2050? ›
In 2050, we project that:
The oldest old will include more women and widows, but fewer disabled, than those aged 60 or older. The median benefit amount will be higher for the oldest old than for those aged 60 or older. The poverty rate will be lower for the oldest old compared with those aged 60 or older.
What will Social Security be like in 2040? ›
The trust funds will be exhausted in 2040. At that time, Social Security will not be able to meet all of its benefit obligations if no changes are made. benefits could be paid—unless changes are made. There are several ways to guarantee that Social Security continues to be there for future generations.
What will Social Security look like in 2030? ›
Social Security benefits are impacted by changes in wages and inflation, so the average payout naturally increases over time. The average Social Security benefit has increased at 3.6% annually since 2000, so it could increase 28% by 2030.
Will Social Security last until 2035? ›
Social Security, Medicare funds will last until 2035, but Congress 'needs to act': Report. Due to low unemployment and rising wages, Medicare's trust fund for hospital expenses will see its reserves depleted in 2036, and Social Security's funds will pay full benefits until 2035, according to a new report.
