When Will Social Security Run Out?

Funded by the Federal government, Social Security is a blanket term for supplemental financial assistance delivered by the Social Security Administration (SSA). The SSA oversees several types of supplementary benefits for retirees, survivors of deceased workers and people with disabilities.

Social Security was first enacted in 1935 in response to the economic effects of the Great Depression. Although it was never meant to be totally relied on, today Social Security provides a valuable source of supplemental retirement income for millions of Americans.

As of December 2022, almost 9 in 10 Americans aged 65 and older were receiving Social Security benefits. Across the broad spectrum, Social Security constitutes 30% of recipients’ retirement income. For more than 37% of elderly men and 42% of elderly women, their Social Security benefit represents more than half their entire retirement income.

In 2023, more than 67 million Americans will receive a monthly benefit from SSA, the majority of whom will be retirees. Though individual benefits vary greatly, the average retirement benefit is $1,827. That’s a significant sum every month. Lately, you may have seen headlines that Social Security is running out. However, those reports are slightly misleading.

The Trustees of the Social Security trust fund reported that at current funding levels, the SSA will be able to provide 100% of required retirement benefits until 2033. After that, the reserve funds will be depleted.

It’s important to note this does not mean Social Security will be “broke” after that point; taxes will still be paid into the program and the SSA will be able to fund 77% of scheduled retirement benefits. It is true, however, that without government action, retirees could see a reduction in their Social Security benefits after 2033.

One of Social Security’s biggest challenges is the age spread of the general U.S. population. As of 2020, 17% of the population is over 65; by 2040, the 65 and up group is expected to hit 22%. Americans are also living longer. In 1980, the average life expectancy was 73.7 years; in 2023, it is 79.11.

However, the biggest reason for the demographic imbalance is that the birth rate is dropping. Each generation has fewer children than the one before. That means larger segments of the population are collecting retirement benefits, for longer periods.

The 2033 date provided in the Social Security Trustee report is not a deadline, but an explanation of what might happen without decisive legislative changes. But that does not mean Social Security will abruptly end in 2033. Incoming taxes would still cover 77% of benefits.

The drop in benefits will only come true if there are no significant funding changes between now and 2033. The 2024 Biden-Harris budget provided the SSA with a 10% budget increase. In addition, Congress, which passed the Secure 2.0 Act in December 2022, showed that it can deliver much-needed attention to the retirement programs Americans need.

Social Security solvency means the ability to have enough trust funds to pay 100% of benefits as needed. This is where the year 2034 comes in. At that point, without budget changes, the SSA will only be able to fund 77% of benefits, rather than 100%.

If the Social Security reserve funds are depleted, retirees could see their benefits drop to 77% of the amount they expected to receive. But that’s not the only potential consequence. The Congressional Budget Office projects that the Social Security trust fund could be fully maintained through 2096 by raising payroll tax rates by 4.9%. Another potential causality might be an increase in the age at which you can begin to claim benefits.

When planning for your retirement, make sure to examine the potential for uncertainty when it comes to your Social Security benefit. Social Security was never meant to be your only source of retirement income, only part of the income provided by your savings, investments and other pensions.

If you are able, consider increasing your contributions to your retirement savings. Be sure to diversify your retirement income streams. Having multiple income streams can future-proof your lifestyle in retirement.

To ensure you know how much you’ll need, take advantage of the many free retirement planning calculators available to you.

Don’t hesitate to speak to a trusted financial advisor about your concerns and strategies.

In addition, it’s important to communicate your concerns to your political representatives. Stabilizing the future of Social Security will require good faith efforts from all members of Congress. With an aging population, the issue is too important for partisan politics.

Editor Malori Malone contributed to this article.