The Social Security retirement trust fund, which provides monthly payments to retired workers, their families, and survivors of deceased workers, is expected to run short of funds months earlier than projected last year, according to the annual Social Security and Medicare trustees’ report. Without congressional action, younger generations could be left to pay the price. The earlier depletion, now forecasted by 2033, is due in part to changes such as those introduced during former President Joe Biden’s administration, which expanded coverage to nearly 3 million current and former public sector workers who were not previously covered by Social Security.
Additional factors include the potential for the U.S.’s fertility rate to remain low, coupled with projections that workers’ wages will be lower than expected, resulting in less money being paid into the program. To address the shortfall, the trustees suggest that either more revenue needs to be collected—potentially through a payroll tax increase—or benefits will need to be reduced. If Congress does nothing to change the tide, then workers face a 23% automatic benefit cut in a few years.
Social Security’s financial struggles have been a long-standing concern and are a top financial worry for non-retirees of all ages in the U.S.
Older generations, those within about five years of being eligible to collect their benefits, are more likely to be grandfathered into the current rules if changes are made. However, younger Americans face a “higher probability that Social Security will look different when they retire,” says Kevin Brady, certified financial planner at Wealthspire Advisors. In fact, the trustees’ report notes that delaying “substantial” changes to the program now means “significantly larger changes would be necessary” later, such as much higher tax increases or more severe benefit cuts.
Earlier depletion affects Social Security benefits
Given Congress’s seeming inability to address the problem, financial planners like Brady are advising their clients on how to prepare for the future. “That probability increases the younger the client is,” says Brady.
“Stress-testing plans with reduced Social Security benefits can be helpful, often prompting conversations about increasing savings or other long-term adjustments. In many cases, it simply means they’ll need to save more or be open to working longer, which can be a valid tradeoff depending on their situation.”
Owen Malcolm, CFP at Apollon Wealth Management, believes that full benefit cuts are unlikely. “No politician wants to be responsible for cutting the program many Americans rely on to get by financially in old age,” he says.
Still, like Brady, he recommends that retirement savers focus on what they can control: early planning, saving, and thoughtful decision-making. “Over the years, changes to the program have tended to be incremental rather than drastic. The most recent update, the Social Security Fairness Act, actually expanded benefits,” says Malcolm.
“It’s worth asking what’s more likely: that policymakers raise revenue through tax changes, adjust the wage cap, or cut benefits outright? While that may depend on who controls Congress, history suggests that not all reforms or changes are negative.”
