Is Social Security's future at risk? The program faces serious challenges, and some experts worry it might not meet its full obligation to America’s seniors.
The reality is that Social Security’s combined trust fund might run out of cash as soon as 2035 unless significant changes occur. For the millions of Americans counting on these benefits — either now or in the future — that’s concerning.
As you build your retirement plan , here are some steps you can take to prepare in case the worst comes to pass for Social Security.
Find Out: 8 must-do things before 60 for a stress-free retirement
1. What difficulties face the Social Security program?
In May, the Social Security Administration's (SSA) annual trustees report provided an update on how well the reserves were holding up. The news wasn’t great.
The report projected that the trust fund might be depleted by 2035. Unless something is done, retirees will only receive about 85% of their benefits at that point.
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2. How does Social Security get its funding?
To understand why this is happening, consider how Social Security is funded. With each paycheck, you contribute a portion of your earnings to Social Security through a payroll tax deduction, and your employer contributes as well.
You and your employer each pay half of the 12.4% Social Security tax due from you. Self-employed individuals pay the entire thing.
About 85% of your contribution goes toward the Social Security trust fund, and 15% goes to Social Security disability.
In the past, more than enough workers paid Social Security tax to keep benefits flowing to retirees. But this is no longer the case.
3. When will Social Security fail to meet its obligations?
The 2024 annual report makes clear that if nothing changes, it is estimated that Social Security will deplete its trust fund by 2035.
Running out of money does not mean the agency will shut down. However, it will no longer have the cash reserves to pay out the full amount each person expects and is owed under current Social Security rules.
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4. What will happen if Social Security continues on its current path?
When the trust fund no longer has money to supplement what Social Security collects through payroll deductions, the Social Security Administration will be forced to reduce the amount it pays each person in benefits.
That means retirees could expect to get just 83% of their full benefits.
Birth rates have dropped from three children per woman to just two children. Fewer people are paying into the Social Security system, reducing the amount collected.
5. Will I still get Social Security?
Even if the trust funds are emptied, you're likely to still get most of your benefit.
However, the disappearance of the trust fund would mean that you would not receive the full amount that you expect unless significant changes are made to shore up Social Security's finances.
6. Is it possible to fix Social Security’s problems?
A potential 25% drop in benefits would be serious for those who count on Social Security benefits as a core component of their retirement income.
Steps can be taken to address the shortfall. They may include increasing the amount of money coming into Social Security, reducing benefits, or making other adjustments.
It is likely that younger Americans would shoulder the responsibility of fixing the insolvency issue, seeing their benefits cut, their Social Security taxes raised, or both.
Thus far, few politicians have shown an appetite for fixing Social Security.
Make Money: 8 things to do if you're barely scraping by financially 7. What should I do in light of Social Security’s woes?
The reality is that Social Security is likely to be there for you, but it might not offer you the same level of financial support you had hoped for unless things change.
Fortunately, there are some steps you can take so that you are better prepared for retirement regardless of what happens to Social Security. They include:
- Develop a plan now that provides you with multiple sources of income during retirement. For example, you might continue to invest and save. Or, you might tap into your retirement nest egg regularly.
- Consider holding off claiming Social Security until you are older. The longer you wait to claim up to age 70, the bigger your monthly benefit payment will be.
- Work longer and retire later. If staying in your full-time role is unappealing, try to earn extra money through a part-time job or side hustle.
Bottom line
Whether you are young and just starting to contribute to a retirement plan or are approaching retirement age, it’s critical to keep a keen eye on what’s happening with Social Security.
Adjust your investments, increase contributions to retirement plans, and look for ways to supplement your Social Security . Such steps might help keep you in good financial shape regardless of what happens to Social Security.
Money tips that can work for everyone
No matter what your bank account balance is, there's always an opportunity to optimize and improve your finances. Here's a quick checklist of things you can look at today.
Focus on paying off your debt . Debt can hold you back from making progress with your overall financial well-being. Aside from cutting expenses, there are tools that can help you pay off debt faster like balance transfer credit cards and debt counseling.
Earning extra income can give you breathing room. If finances are tight, earning some extra money to supplement your income can make a huge difference. A new job is one option to consider, but if you're not ready to make a big change or already retired, a part-time side job could be a better choice.
Cut your expenses. It sounds painful and so not fun, but it doesn't have to be. Take a look at your biggest expenses because that's where you'll probably find the biggest savings. For example, auto insurance rates have been soaring so shopping around for a new insurance company can be the fastest way to cut your bill. Also, look for ways to cut your grocery bill (despite rising inflation).
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