Social Security is now spending more money than it's taking in each year, calling the future of your benefits into question. Some people fear the program is going to disappear before they ever get to see a dime. This attitude is especially prevalent among millennials and Gen X, who have the longest wait until they can claim benefits. But are they right? 

Not exactly. While Social Security's situation is serious, it's not as bad as some people believe. Here's a look at your full 75-year Social Security forecast.

Serious person with hand on chin looking at laptop.

Image source: Getty Images.

The source of Social Security's funding woes

Social Security operates on funds from three sources: 

  • Social Security payroll taxes
  • Interest earned on money in the program's trust funds
  • Social Security benefit taxes

Social Security payroll taxes provided $838.2 billion for the program last year -- far and away the bulk of its funding. The current tax rate is 12.4%, split evenly between employee and employer. Everyone pays this on at least some of their income. In 2022, the government taxes the first $147,000 you make, and in 2023, this will jump to $160,200.

The government also taxes the Social Security benefits of some seniors if their incomes exceed certain thresholds for their tax-filing status. How much they owe depends on their income and their tax bracket for the year. In 2021, this provided about $37.2 billion for the program.

These two sources of funding for the program aren't going anywhere, and Social Security benefit taxes might even increase over time. The requirements for who owes these taxes hasn't changed in years, and as the average Social Security benefit rises, more and more seniors are likely to pay them.

The real problem for Social Security is the trust fund interest. In 2021, this was the program's second-largest funding source, amounting to $67.5 million. In the past, the huge baby boomer generation paid a lot in Social Security payroll taxes, which provided plenty of money for the program and kept the trust funds strong. But now all those baby boomers are retiring and there are fewer workers replacing them. So the government has had to use the money in the trust funds to make up the difference, and now that's running out.

What's Social Security going to look like in 75 years?

For the next few years, Social Security is going to be business as usual. The program has enough money on hand to pay out full benefits for all qualifying individuals until about 2035, according to the latest Social Security Trustees Report. But after that, things start to go downhill.

The program will only be able to pay out about 80% of scheduled benefits going forward. And this will gradually decline to 74% by the year 2096. 

There's good news and bad news here. The bad news is obviously the threat of benefit cuts. But the good news is that even in the worst-case scenario, you're still going to get something from Social Security. The Trustees Report doesn't show any projections beyond the year 2096, but the fact that it would be able to pay out 74% of scheduled benefits in that year suggests that even at that point, it'll be a long way from disappearing completely.

But a lot could change

The above scenario is what's projected to happen if the government makes no changes to Social Security, but it's aware of the funding crisis. Many Congresspeople want to see changes made to help the program remain sustainable for generations to come, but they haven't yet agreed on what those changes should be.

The Social Security Trustees Report suggests a few possible fixes, including:

  • Increasing the Social Security payroll tax rate by 3.24% (or as high as 4.07% if the government waits until 2035 to do this)
  • Reducing benefits by 20.3% for all current and future beneficiaries (or as much as 24.9% if the government puts it off until 2035)
  • Reducing benefits by 24.1% for all those who sign up for Social Security in 2022 or later

The government could also choose to employ a combination of these strategies, or it could make additional changes, like raising the full retirement age (FRA), which dictates when you qualify for your full benefit based on your work history. Claiming below this age is still an option, but it'll shrink your monthly benefit.

Whatever happens, it's probably going to leave some people upset, and it's even possible that seniors could still see benefit cuts, even if they're not as steep as the ones listed above. If you're worried about this, you may want to consider relying more on your personal savings and planning for Social Security benefits that are about 25% smaller than what you'd qualify for based on the current Social Security rules. Stay up to date on any changes the government makes to the program as well so you can adapt your retirement strategy as necessary.