Social Security is more than just a monthly payment for many retirees; it's a lifeline. Around 90% of current retirees rely on their benefits to some degree, according to a 2023 poll from Gallup, with around 60% of that group saying Social Security is a major source of income.
The program has been facing some major cash challenges, however, putting benefits at risk. Exactly how severe the problem will be over the long term is still uncertain. Every year, though, the Social Security Administration Board of Trustees releases a report detailing the state of the program and its outlook for the future.
Last week, the Board of Trustees released its report for 2024 -- and there's good and bad news for retirees.
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Is Social Security running out of money?
First, it's important to know exactly what's going on with the program and the challenges it's facing.
Social Security is funded primarily by payroll taxes. Current workers pay into the program through taxes, and that money is then paid out to current beneficiaries. But in recent years, the money coming into the program hasn't been enough to fully fund benefits, resulting in a deficit.
To cover the deficit and avoid benefit cuts for now, the Social Security Administration has been dipping into its trust funds. But those funds are quickly running dry, and when they're depleted, the program's income sources will be the only money available to be paid out in benefits.
To be clear, this doesn't mean that Social Security will be going away -- even if the trust funds run out. As long as workers continue paying payroll taxes, there will always be some money to pay out in benefits. However, it does mean that benefit cuts could be on the horizon.
The not-so-good news about the future
The bad news is that benefit cuts may be coming in the relatively near future. According to the Board of Trustees' latest report, the trust funds are expected to run dry by 2035. At that point, the program's income sources will only cover around 83% of scheduled benefits.
In other words, if nothing changes by 2035, benefits could be slashed by around 17%. This would affect all beneficiaries, too -- including retired workers, spouses, and those receiving disability benefits.
While Congress has been debating various solutions to the problem (such as raising the full retirement age, increasing payroll taxes, and reducing benefits for higher earnings), lawmakers haven't managed to agree on anything yet. It may be wise, then, to start planning for potential cuts now.
The silver lining
Although the future of Social Security may look bleak, there's still some good news to come out of the latest Trustees report: The trust funds aren't being depleted as quickly as previously predicted.
Again, as of 2024, the Social Security Administration expects the funds to run out by 2035, at which point the program will be able to continue paying 83% of future benefits.
In 2023, the funds were expected to be depleted by 2034, and the program could continue paying out 80% of scheduled benefits. And going all the way back to 2014, those figures were 2033 and 77%, respectively.
Of course, benefit cuts are not necessarily good news in any context. But according to the most recent predictions, retirees may have a little longer before facing cuts -- and if they do happen, they might not be quite as severe as previously expected.
There may not be much you can do to prevent potential cuts, but staying informed about the future of Social Security is still a good idea. By starting to plan for them now, you can ensure you're as prepared as possible no matter what the future holds for the program.
