Millions of Americans rely on Social Security, but many are also concerned about its dependability going forward.
60% of current retirees say their benefits are a major source of income, according to a 2024 poll from Gallup. 43% of Americans worry "a great deal" about the future of Social Security, the poll found, and 47% of workers don't believe the program will be able to pay them a benefit once they retire.
The good news is that Social Security isn't going away entirely. However, the average retiree could have their benefit slashed by nearly $4,000 per year within the decade if lawmakers can't find a solution to its cash shortfall.
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Is Social Security running out of money?
One common misconception is that Social Security is going bankrupt and benefits are going away. In reality, the program is facing an income deficit that could lead to benefit cuts in the future.
Most of Social Security's income comes from taxes, including payroll taxes and income taxes on benefits. But as baby boomers retire in droves and older adults live longer lifespans, the program has been paying out more in benefits than it's receiving from its income sources.
As a result, the Social Security Administration (SSA) has been pulling money from its two trust funds to cover the deficit. The Old-Age and Survivors Insurance (OASI) trust fund covers retirement benefits, while the Disability Insurance (DI) fund covers disability benefits.
Those funds were never designed to be a significant source of income for Social Security, so that money won't last forever. The OASI fund will be depleted by 2033, according to the SSA Board of Trustees' latest projections, and the combined funds are expected to run out by 2035.
If nothing happens between now and 2035 and both funds are depleted, Social Security's income sources will only be enough to pay out around 83% of scheduled benefits.
What does this mean for retirees?
If the trust funds run out and the SSA can only pay out 83% of benefits, that means payments could be slashed by around 17% by 2035.
The average retired worker collects around $1,925 per month from Social Security, as of November 2024. A 17% reduction would amount to around $327 per month, or $3,924 per year.
Keep in mind that there's a good chance lawmakers will come up with some sort of solution before 2035, so these cuts may not happen at all. But some of the solutions could also affect your Social Security to a lesser degree. While nothing is set in stone yet, some of the more popular proposals include:
- Taxing income above $400,000 per year: Right now, only income up to $176,100 per year is subject to Social Security taxes. Taxing those at higher incomes would increase Social Security's cash flow, providing more money to pay out in benefits.
- Raising the full retirement age: Everyone's full retirement age falls between ages 66 and 67, but some lawmakers have suggested raising it to 68 or even 70. This means older adults would have to wait longer to receive their full benefit, reducing their lifetime benefit amount -- and lowering Social Security's expenses.
- Reducing benefits for higher earners: Another potential way to trim Social Security's costs is to reduce benefits for higher earners. These retirees would still receive larger-than-average checks, but they'd be smaller than what they'd normally collect. Because this is still only a proposal, it's unclear exactly how much of a reduction these retirees could face or who might be affected.
- Raising the payroll tax: Increasing the tax itself would also boost Social Security's funding, though this would affect all workers and employers who are subject to payroll taxes -- not just higher earners.
Again, lawmakers have not yet agreed on a solution for Social Security, so none of these suggestions are in effect right now. That said, as the clock ticks closer to 2035, Congress is on an increasingly tight schedule to do something about the program's cash problem. The longer it takes to implement a solution, the more severe that solution might need to be.
For now, perhaps the best thing you can do is just stay aware of the situation and, if possible, take steps to reduce your dependence on Social Security. The more income you have coming from other sources, the less these potential cuts might sting.
