Social Security's been inching closer to insolvency for years, to the distress of seniors and workers everywhere. We've all been watching closely to see if the government will make alterations to the program before its trust funds are fully depleted. But so far, there are no signs of resolution.

Even worse, the most recent available data suggests we could have even less time than we thought until Social Security becomes insolvent. Here's what that means for everyone who relies upon it.

Concerned person with hand on head looking at laptop.

Image source: Getty Images.

How long until Social Security becomes insolvent?

Social Security insolvency would occur if the program didn't have enough money to pay out all scheduled benefits. It's something people have been worried about for years because it's currently expending more money than it's taking in annually.

There are a few reasons for this. First, many baby boomers have now retired and are claiming Social Security or will soon. But the generations that have come after them haven't been as large. That leaves fewer workers behind to pay the Social Security payroll taxes that provide the bulk of the program's funding. 

Average Social Security benefits also continue to rise over time, helped along by annual cost-of-living adjustments (COLAs) that are intended to help benefits keep pace with inflation. This further exacerbates the funding crisis.

The last Social Security Trustees Report, released in June 2022, estimated that the trust funds that have been making up for the funding shortfall would be depleted in 2035. But a Congressional Budget Office report from February 2023 indicates that the actual depletion date for the Old-Age and Survivors Insurance Trust Fund, which pays benefits to seniors and the surviving family of deceased workers, could be closer to 2032.

This change could be due to Social Security's historic 8.7% COLA for 2022, which was announced last October. It was the largest benefit hike in 40 years, brought about by the high inflation we faced last year. It may have provided today's seniors with some short-term relief, but it also increased the urgency for a long-term funding solution.

What does this mean for those who rely on Social Security?

A lot of people mistakenly believe that Social Security will no longer be around once its trust funds are depleted. But the reality isn't quite that dire.

The Trustees Report estimated that, even in the worst-case scenario, the program could pay out 80% of scheduled benefits going forward. This would eventually drop to 74% of scheduled benefits by 2096. So even 73 years from now, qualifying workers will still get something from the program.

But there's a real possibility that your checks won't go as far in the future as they do today. A 20% benefit cut would reduce last month's average Social Security benefit for retired workers from $1,831 per month to about $1,465 per month. That amounts to an annual loss of nearly $4,400. 

It may not happen this way. We still have close to a decade before the trust funds are projected to run out, and the government may come up with a solution that avoids benefit cuts before then. 

But it doesn't hurt to take steps to reduce your reliance on Social Security if you can. Build up your personal savings so you can cover most of your retirement expenses on your own. And if you don't think you'll be able to save enough, consider prolonging your time in the workforce or working part-time in retirement.

Since this situation remains unresolved, you also have to be ready to adapt your Social Security strategy and your retirement plan as necessary if things change. Keep an eye out for any news regarding Social Security's solvency, and make whatever changes are necessary to keep yourself on track for the retirement you want.