Earlier this summer, we got worrying news that Social Security's trust funds are expected to be depleted in 2034 -- a year earlier than what 2024 estimates projected. The latest Trustees Report suggests that everything will be business as usual, at least for the next eight years. But that estimate is based on assumptions about everything from life expectancy to income, and there's no way to know whether they're right.
It might seem like all you can do right now is wait and watch to see what Congress will do to your benefits in the future. But that's not true. By understanding why the program is running short of money, you can anticipate the types of Social Security changes the government might have to make in the near future, so you can start preparing yourself now.
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The state of Social Security
Social Security depends on three sources of income to operate smoothly: payroll taxes from workers, benefit taxes from some seniors, and interest income from money in the trust funds. Take away one of those sources -- like the trust fund income -- and the other two need to pick up the slack somehow. The only other option is benefit cuts, which the latest Trustees Report estimates would be around 23% if the government does nothing to resolve this funding issue.
By far the largest of Social Security's income sources is payroll tax income. This amounted to nearly $1.3 trillion in 2024. In comparison, interest income only totaled about $69 billion, and benefit taxation was about $55 billion. So anything that could disrupt the flow of taxes coming in is a serious concern.
That's a big part of why Social Security is in its current predicament. When the baby boomers retired, the number of beneficiaries ballooned quickly. The generations that followed them were smaller, so there were fewer workers to pay taxes in their stead. This upset the ratio between the number of workers and the number of beneficiaries.
Legislative changes can also disrupt Social Security income and expenses. President Joe Biden's Social Security Fairness Act increased benefits for select seniors, which will also increase the program's expenses. President Donald Trump's One Big, Beautiful Bill Act (OBBBA), which passed after the 2025 Trustees Report was released, is expected to reduce the benefit taxes the program takes in.
Then there's the issue of the assumptions the Trustees Report uses to predict when the program's trust funds will be depleted. These include assumptions about life expectancy, income, and fertility rates, to name a few. If any of these are off, the insolvency date could be off too.
These examples highlight that Social Security's insolvency date is always a bit of a moving target. It's not out of the question that the program could run out of money before 2034.
What happens if Social Security runs out of money early?
We have approximately 10 months to wait until the next Social Security Trustees Report, so it'll be a while before we get an updated estimate of how the trust funds are doing. But even if the news is bad, it's important to put it in perspective.
The government is unlikely to allow Social Security to drop by nearly a quarter. It will likely intervene. We don't know what Social Security reforms Washington will decide upon, but we know that there are really only three ways to solve this:
- Increase revenue by raising taxes.
- Reduce expenses by cutting benefits.
- Increase revenue and reduce expenses.
There are different ways to tackle each option. For example, increasing the ceiling on income subject to Social Security payroll taxes ($176,100 in 2025) would primarily affect high earners. Raising payroll taxes on everyone would affect people of all economic backgrounds. Similarly, you could cut benefits for all retirees, or raise the full retirement age (FRA), which would act as a cut only for younger adults.
The only thing we know for sure is that the government will have to make some sort of a decision in the next few years. Once it does, it'll be time for retirees and workers alike to sit down and review their retirement budget to decide how they plan to cover their expenses moving forward.
For some, it might require significant changes, like working longer or moving to a more affordable area in retirement. Others may not have to make too many adjustments. But it's still important to do the math so you know what you can afford. Otherwise, you run the risk of draining your savings prematurely.
