Social Security is the backbone of many Americans' retirement plans. More than one-third of adults said the government program would be a major source of income in retirement in the most recent edition of an annual Gallup poll. That number has climbed higher over the last 20 years since Gallup started the survey. Meanwhile, six in 10 current retirees say their monthly check is a big piece of their budget.
But with more and more Americans relying on Social Security, the future of the program has never looked more uncertain. Not only are seniors staring down the barrel of benefit cuts in just a few years, but the problem is only getting worse.
Here's what seniors can expect and how they can plan for the future of Social Security.
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The countdown to Social Security insolvency
Retirees could see a significant benefit cut in just eight years if Congress doesn't act to change Social Security and improve its longevity. That's when the Social Security Board of Trustees estimates the program will deplete the Social Security Old Age and Survivors Insurance trust fund.
The Social Security trust fund was established to hold excess tax revenue from wages to pay out to retirees when they start collecting benefits later. In the meantime, the Social Security Administration invests those funds in government bonds to earn a steady return on the principal. Over time, the balance grew as the working population grew faster than the retirement population.
But as Baby Boomers started retiring, life expectancies increased, and younger generations had fewer children, the demographic shifts started putting pressure on the trust fund balance. As a result, Social Security has been running a deficit in most years since 2018. And that deficit is getting worse each year as the retired population grows faster than the working population.
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Every year, the trustees analyze the current state of Social Security and forecast the future of the program. Changes in the workforce, life expectancies, or Social Security policies can impact those estimates. Unfortunately for seniors, the projections got even worse this year.
While the 2024 Trustees Report expected retirees to face a 21% overall reduction in benefits starting in 2033, that number climbed to 23% in the latest edition. Here's why seniors could be facing bigger benefits cuts and what they can do about it.
The changes causing bigger benefit cuts
It's not just the growing retiree population that's negatively impacting the health of Social Security. After all, almost everyone collecting Social Security today paid into the system for years before retiring.
One notable shift negatively impacting Social Security is the growing income inequality in America. Only 82% of earnings were subject to Social Security tax in 2022. That compares to the 90% benchmark Congress targeted in its 1983 Social Security reforms. But even if we returned to that benchmark, it would only make up a portion of the shortfall over the coming years.
Another challenge is a slow-growing working population. That's exacerbated by a decline in immigration and further hurt by current immigration policies imposed by the Trump administration. That said, allowing more immigrants to work in the United States (and pay Social Security taxes) would provide only a small amount of additional revenue to Social Security.
The biggest change over the past year that's led the trustees to increase their forecast of the Social Security shortfall is the passage of the Social Security Fairness Act. The law repealed the Windfall Elimination Provision and Government Pension Offset, boosting Social Security benefits for 3.2 million retirees and many more in the future. It was also retroactive to 2024, further depleting the trust fund.
So, while those retirees will see a step up in their benefits, many more could see deeper cuts in the future. That's not lost on most seniors, and it's led a surprising number of 62-year-olds to claim their benefits as soon as possible this year instead of waiting to maximize their benefits at age 70.
But that might not be the smartest move. Here's why.
What does the future hold for Social Security?
While the program faces a major threat if Congress fails to act within the next eight years, it's still in most seniors' best interest to wait to claim Social Security on their own terms. There are two key reasons.
First, it's highly unlikely Congress will allow Social Security benefits cuts. It may enact laws raising the full retirement age in the future, increasing the Social Security tax, increasing the amount of taxable wages, or some combination of all that and more. It could allow benefits to come out of the general fund instead of the trust fund (hopefully with a plan to return Social Security to solvency and reduce the overall government debt). But the clock is ticking for Congress to take action.
Second, even if there are benefit cuts in the future, taking Social Security early (when you'd otherwise wait) could result in a much worse scenario for you in the future. The breakeven point for lifetime Social Security income will get pushed out further if you wait and Social Security is forced to cut benefits. But at its core, Social Security is longevity insurance. You'll be much better off in your late 80s if you waited to take Social Security and receive a bigger check than if you claimed as soon as possible.
So, while the outlook for Social Security is getting worse, seniors shouldn't be in a rush to get their money while they can.
