Without a fix, Social Security will only be able to pay 79% of claims by 2033. This is the top concern for retirees, 94% of whom want to see action to fix the problem.
Painfully, instead of addressing this situation, President Donald Trump has proposed a budget bill that will massively increase the US debt and, if anything, worsen Social Security’s financial position. The cost of the budget is quite similar to the amount needed to fix Social Security now and in the future. And to make matters worse, DOGE initiated the layoffs of 7,000 Social Security Administration workers, imperiling operations, slowing access to customer service, and delaying benefit approvals. My old colleague and brilliant retirement policy thinker, Dr. Teresa Ghilarducci writes that:
The current administration and its allies in Congress are choosing to “do nothing”—a deeply political choice that ensures Social Security will hit the wall by 2033. That is not passive. That is deliberate negligence. A benefit cut of 21% isn’t hypothetical—it’s already written into law if Congress fails to act.
The situation is dire now, though it has been in the past, too.
Why Do People Worry About Social Security?
Projections show that Social Security will run out of money at current rates, potentially pretty quickly if Trump’s policies, such as exempting tips from Social Security, are enacted. Social Security was previously off-track and got a comprehensive solution in 1983 (more on that later), but since the,n an unprecedented amount of wage growth has gone to people making such high incomes that they only pay social security taxes on some of their wage income.
Social Security is funded with a payroll tax called the FICA tax. Nearly every W-2 employee, corporation, and self-employed individual must pay into the system. These collective funds are put into a trust fund, which is used to cover today’s retirees’ benefits. Retirees’ benefits are paid for with taxes paid by people working at the same time.
To reiterate, when a worker pays Social Security and Medicare taxes, they are not paying into a personal account for their future use. They are contributing to the fund that pays retirees today.
“Solvency” is the technical term for the trust’s ability to pay all its scheduled benefits. If solvency falls below 100%, it will eventually need to raise more revenue or pay out fewer benefits.
The Current State of Social Security
In the 2024 Trustees Report, the Social Security Administration (SSA) found that the Old-Age and Survivors Insurance (OASI) trust fund can pay out 100% of scheduled benefits through 2033 (these are the same findings as the 2023 report).
Unless we make some changes before then, Social Security will only be able to pay 79% of claims by 2033.
This tells us that Social Security is currently paying out more to retirees than it’s generating in tax revenue—in other words, Social Security has a cash flow problem. But the issues are fixable!
Why Is Social Security Facing Challenges?
The big question is, why is Social Security set to “run out” in 10 years?
There are two primary factors impacting the solvency issue with Social Security:
Demographics: The birth rate has declined steadily over the past 20 years. Fewer people working means fewer FICA taxes collected. At the same time, the “silver tsunami” is in full swing. A wave of Baby Boomers is reaching retirement age all around the same time. For reference, around 11,200 people turn 65 every day, and that number will stay the same through 2027. This is changing the worker-to-beneficiary ratio, which is projected to be around 2.4 workers per beneficiary by 2033. By comparison, the ratio was around 3.4 workers per beneficiary in 2000. Immigration tends to bring in additional workers and meaningfully helps resolve the demographic challenges Social Security faces.
Economics: The OASI trust fund earns interest, which means periods of historically low interest rates (as we saw in the early 2020s) will decrease its growth trajectory. At the same time, wage inequality across America continues to impact how much FICA tax is collected. In 2025, for example, the maximum amount of an individual’s income subject to Social Security tax is $176,100. Unless the ceiling is lifted on Social Security tax, high earners will continue paying proportionally less in Social Security tax than those earning below the limit, and the concerns over solvency will remain.
Historically Speaking, Social Security Has Changed Before
Now, let’s fast forward to 2033 when the OASI fund is projected to run out. Will the government say “too bad, so sad” and neglect its responsibility to pay what retirees are owed? Historically speaking, that hasn’t been the case. And though we’re in a period of uncertainty, particularly as it applies to federally funded programs, it may be helpful to remember that changes can be made—and have been made in the past to address demographic and economic shifts.
In 1983, for example, significant legislative action led to the Social Security Amendments of 1983, in response to concerns over long-term solvency. These changes included:
- Payroll tax increases
- Raising the full retirement age
- Extending Social Security eligibility to additional groups, including federal workers and non-profit employees
- Taxing a portion of Social Security benefits, depending on other income sources in retirement
The projected shortfall (21%) should be fixable with some of the same tools we used in the 1983 revision.
Managing and Understanding Your Benefits
Now that we’ve covered the current state of Social Security and what could potentially be coming, let’s focus on the most important piece of this puzzle: you and your benefits.
How Social Security Benefits Are Calculated
Your Social Security payments will be based on your 35 highest-earning years, adjusted for inflation. More technically, the SSA uses a formula based on your average indexed monthly earnings (AIME) to calculate your primary insurance amount (PIA).
The higher your top 35 years of earnings, the higher your monthly benefits will be in retirement. Often, an individual’s peak earning years are right before retirement, which may be worth considering how your runway to retirement could impact your future monthly benefits. Is it worth working a few more years to grow your savings and increase monthly payments? That’s an excellent question for a social security expert and/or your financial advisor, if you have one.
You can learn more about AIME and the PIA formula here.
Should You Claim Early or Delay?
Your actual monthly benefit amounts may be higher or lower than your PIA, depending on when you choose to start collecting.
For most people, full retirement age is 67 years old. If you begin collecting at age 67, you’ll receive your entire PIA. But, you do have the option to start collecting as early as age 62. The catch? Your monthly benefits will be reduced for every month you collect before full retirement age.
On the other hand, you can delay receiving your retirement benefits until age 70. For every month you delay, you’ll receive a delayed retirement credit. This can add up to 8% in additional benefits per year or up to 24% if you wait three years from 67 to 70.
While everyone’s situation is different, we generally encourage clients whose current health and family history suggest an average or better life expectancy to wait as long as possible before starting to claim benefits. Doing so results in a meaningful boost to their benefits. For someone with a lower life expectancy, claiming earlier may be the best option.
The claiming decision needs to take into account your other retirement resources. Do you have enough to keep your lifestyle afloat while you delay Social Security benefits? Or would doing so jeopardize your financial security and well-being? You need to coordinate with all your retirement resources to determine this.
If you’re curious to know just how impactful timing your benefits can be, here’s a benefits calculator.
Should You Be Worried About Your Social Security?
In this era of unprecedented and abrupt changes to the norms and functioning of government movements, no one can be certain how much to worry about any particular Federal program. And yet, for political reasons, Social Security is safer than most. Social Security is very popular, and cutting it would be very unpopular. Pew recently found broad support for protecting Social Securit,y with 77% of Republicans and 83% of Democrats saying Social Security benefits should not be reduced. This is a policy issue that has significant support within both parties.
Social Security will need to change in some meaningful sense for those large majorities of Americans to get their wish. This isn’t a new problem—Social Security has changed many times before, in 1939, 1956, 1961, 1962, 1965, 1972, 1977, and 1983. So adjusting the system is pretty common, if anything, it’s unusual that we haven’t had a major overhaul in over 40 years.
To recap: most Americans want Social Security to continue, but the math doesn’t work without some changes. That’s why I think the most likely outcome is that we’ll see some changes, perhaps similar to the ones enacted during the 1983 overhaul. If we are right, at some point, social security-related taxes will increase or benefits will decrease—perhaps both. Given how many times risks have arisen and been resolved, I don’t anticipate that benefits will cease entirely, and it’s also unlikely that current beneficiaries or those close to retirement will see any major changes. Even if the Social Security trust fund depletes completely, we won’t necessarily see budget cuts. Currently, the federal government doesn’t bring in as much tax and other revenue as it spends, so we borrow the rest. This is called a deficit budget. We could do the same to fund retiree benefits, just running up more debt each year.
If politicians want to avoid emptying the trust fund, there are options there too. For most of the history of Social Security, the full retirement age was 65. In 1983, during the last major overhaul, the full retirement age was gradually raised to 67 (for those of us born after 1960). I expect people born after a certain year (perhaps 2000?) will have their full retirement age set to 69 or even 70 but that nothing would change much if at all for Boomers, Gen X-ers, and most if not all Millennials. I think the main driver is political. Not interfering with current retirees’ benefits or those within a few decades of retirement would generate less electoral backlash for two main reasons:
- Older people tend to vote more reliably, and so their opinions matter more politically. I imagine that retirees facing cuts to their monthly Social Security checks (on which many rely) would generate enormous anger and attention. That would be disastrous politically for whoever was perceived as responsible for the cuts.
- Younger people have much longer to adjust, and many weren’t anticipating Social Security anyhow. They probably won’t be as politically incensed by changes slated for 2067–those feel quite remote.
I was born in 1983, and I anticipate receiving Social Security when I retire. I suspect that it will be under the current formula or one that isn’t much worse. I would be disappointed but not surprised to learn that I had to wait until 71 or 72 to receive the maximum benefit. I think the likelihood of an adverse change to Social Security benefits is less for people older than me and higher for those younger. But even in the case of my children (Gen Alpha), I still think they’ll benefit from Social Security someday, but they should expect a higher full retirement age.
Always consult a financial, tax, or legal professional familiar with your unique circumstances before making any financial decisions. This material is intended for educational purposes only. Nothing in this material constitutes a solicitation for the sale or purchase of any securities. Any rates of return are historical or hypothetical in nature and are not a guarantee of future returns, which may be lower or higher. Investments involve risk. Investment values will fluctuate with market conditions and security positions, when sold, may be worth less or more than their original cost.