Social Security’s combined trust funds for retirement and disability benefits are projected to hit shortfalls by 2033 under current law, meaning payroll taxes would no longer be sufficient to pay full scheduled benefits. Without legislative solutions, the funds that have accumulated in the past decades will be exhausted and incoming revenue will only cover a percentage of scheduled payouts.
If nothing happens, Social Security benefits will face significant cuts. Here’s how much you could lose if this comes to pass.
If Congress doesn’t act, beneficiaries would need to adjust to a new reality of reduced benefits once the trust funds run out. Trustees’ projections suggest that Social Security may only be able to pay 77% of scheduled benefits.
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For a retiree receiving the average monthly benefit of around $1,900, a 23% reduction could mean losing $437 per month, translating to thousands of dollars per year. A third-party analysis by the Committee for a Responsible Federal Budget shows potential annual losses ranging from about $5,500 to as much as $18,000 for typical beneficiaries if cuts occur close to current projections.
So why is the trust positioned to run out of money when most working Americans are still paying into the system? Demographic shifts play a major role. The baby boomer generation is one of the largest in U.S. history and is retiring in large numbers, while there are relatively fewer workers paying in. The decline in the worker-to-beneficiary ratio, combined with rising program costs, means annual benefit payouts now exceed payroll tax revenue, forcing Social Security to rely on trust fund reserves that are projected to run dry by 2033.
There is no shortage of proposed solutions. Addressing the trust fund shortfall could involve raising payroll taxes, increasing the amount of wages subject to those taxes, adjusting the retirement age or changing how cost-of-living adjustments are calculated. Without action, full benefits will not be paid after depletion. While these reforms are frequently discussed, they require bipartisan congressional approval, which has proven difficult to achieve.
Relying solely on Social Security for retirement income becomes riskier when benefit reductions are a real possibility. Experts recommend planning for multiple scenarios, including saving more in retirement accounts, delaying when you claim benefits to increase your monthly payout and working with a financial advisor to model how long your savings might last under different assumptions.