Millions of Americans have no confidence in Social Security. In fact, according to a recent nationwide study, 25% of all adults think they won't get a dime of their earned retirement benefits. This includes 47% of millennials, 33% of Gen Xers, and 12% of Baby Boomers.
The big question is, Is this a valid concern?
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Are Americans right to be worried about the future of Social Security?
There is some basis for concern about Social Security's financial stability.
Each year the program's trustees release a report about its finances. And the most recent one suggested its trust fund would run dry in 2035. This report was pre-COVID, and there's plenty of evidence to suggest the pandemic accelerated this timeline and the trust fund could run out of money sooner.
However, while the trust fund is in trouble, that doesn't mean Americans won't get any of their Social Security benefits. In fact, because of the way the program is structured, it's virtually impossible for retirees to end up with no benefits.
See, Social Security is funded by payroll taxes collected from current workers. As long as these taxes keep coming in -- which they will as long as people keep working -- there will be money available to pay benefits to retirees.
While lawmakers could theoretically end payroll tax collection (President Trump set this as a goal), it would be very difficult politically because it would end Social Security as we know it -- which isn't a very popular idea.
That means future retirees really don't have to worry about not getting a dime from the program.
While Social Security benefits won't disappear, cuts could happen
Although there's virtually no chance of Americans getting no Social Security benefits, there's a real risk they'll get less than they were promised.
While payroll taxes will keep coming and provide enough to pay out some promised benefits, they can't provide the full amount of retirement income future retirees are due. In fact, unless lawmakers make changes before the trust fund runs dry in 2035, an automatic 24% cut to benefits would have to occur when the money runs out.
Lawmakers are very unlikely to let seniors lose so much of their monthly income, so they will probably find some way to shore up the program's finances before that happens. Unfortunately, most methods of doing that will end up with retirees getting less money.
Lawmakers could end up changing the full retirement age, which they did in 1983 when Social Security was last subject to major reforms. If FRA is pushed back, future retirees will either get hit with more early filing penalties or have to wait longer to get benefits. Both of these options would leave retirees with less total benefits.
Other changes, such as making more benefits subject to tax or changing the way cost-of-living adjustments are calculated, could also result in de facto benefit cuts.
The bottom line is, if you're among the quarter of Americans worried that Social Security will provide you with no benefits, your concerns are unfounded. But all future retirees should be aware of the very real potential for benefit cuts and should plan to have sufficient retirement savings to support themselves -- even with Social Security checks that are a bit smaller than anticipated.
