At the end of August 2021, a new report was released that showed Social Security is projected to run out of money in 2033, one year earlier than previous calculations. With that deadline only 12 years away it is likely to impact everyone who is not already enrolled in Social Security as well as many who are. What will happen when the fund runs out? You may have heard that benefits will stop being paid once the fund runs out, but that is not likely to happen. We have laid out some of the changes that are likely to be made to Social Security over the next 12 years or after the fund runs out around 2033.
Reduced Benefits
If no changes are made before the fund runs out, the most likely result will be a reduction in the benefits that are paid out. If the only funds available to Social Security in 2033 are the current wage taxes being paid in, the administration would still be able to pay around 75% of promised benefits. While a 25% reduction in benefits could significantly hurt the retirement plans of those who are relying on their Social Security benefits, it is far less damaging than the program being shut down entirely.
With the potential for benefits to be reduced, some retirees may be tempted to apply for their benefits early to receive as much as they can before the fund runs out. However, if you start taking your benefits as soon as allowed, they will be reduced to 70% of your full-retirement age benefit. Comparing this to the 75% that could be received even after the fund runs out, you would still be hurting your retirement by applying early.
Increased Wage Taxes
To avoid benefit reductions, congress may vote to increase the Social Security taxes charged on employee wages. If the increase were put in place immediately, the employee portion of the tax would need to increase from 6.2% to 8%. This would represent an additional $900 in taxes paid annually for an employee making $50,000 per year.
Another proposal in wage taxes that has become popular in recent years is an additional tax on high earners. Rather than increasing the social security tax of 6.2% on all payers, this would implement a new tax on wage income above $400,000 to help stabilize the social security fund.
Increased Full Retirement Age
Even if the fund does not run out, the full retirement age needed to receive your full Social Security benefit is likely to go up in the future as life expectancies increase. Since the Social Security program was first started the average life expectancy has increased 7 years and yet the full age retirement for Social Security has only increased 2 years. As the fund begins to run out, it is likely that the full retirement age will be raised even further, along with harsher benefit cuts for those who apply early.
Summary
While Social Security benefits are unlikely to be completely eliminated 12 years from now, there is a strong possibility that they will be reduced significantly if revenues are not increased in the next few years. To make sure that your retirement plan is secure, you should analyze your retirement income stream under the assumption that your Social Security benefits will be reduced and determine what changes need to be made if that happens.
FAQs
The current projection is that payroll-tax revenue will be enough to pay for 83 percent of benefits when the trust funds go bankrupt in 2035. Benefits would then continue to be cut year after year, since benefits tend to grow faster than payroll-tax revenue.
What will happen if Social Security runs out of money? ›
According to the May 2024 Social Security trustees report, the fund reserves that help pay for Social Security benefits will run out in 2035. Without congressional intervention, retirees would then only be able to receive 83% of their full benefits.
What happens when we run out of Social Security numbers? ›
Even though we have issued over 453 million SSNs so far, and we assign about 5 and one-half million new numbers a year, the current numbering system will provide us with enough new numbers for several generations into the future with no changes in the numbering system.
What if my Social Security benefits are not enough? ›
The downside is that for all but the most frugal Americans Social Security alone simply won't be enough to retire on comfortably. The Social Security Administration says the program should replace about 40 percent of your pre-retirement income. In short, you'll need more income to maintain your standard of living.
What will happen to Social Security after 2034? ›
According to the Social Security Board of Trustees annual 2022 report, Social Security's money reserves will be fully depleted by 2034 — one year earlier than their 2020 report. Annual taxes are expected to cover only about 78% of the benefits each year after that.
Can we sue the government if Social Security runs out? ›
Social Security beneficiaries would remain legally entitled to full, timely benefits and could take legal action to claim the balance of their benefits.
What would happen if Social Security was abolished? ›
“The old-age poverty rate would soar if Social Security benefits were cut,” said Richard Johnson, a senior fellow at the Urban Institute. “Millions of seniors would be unable to afford basic needs, like food, shelter and health care. Many seniors would have to turn to their children for financial help.”
When a person dies, what happens to their Social Security number? ›
The Social Security Administration (www.ssa.gov) does not reappoint a Social Security number to someone else after the original owner's death. The SSA estimates that there are enough new number combinations to last well into the next SEVERAL generations.
At what age is Social Security no longer taxed? ›
Social Security tax FAQs
Social Security income can be taxable no matter how old you are. It all depends on whether your total combined income exceeds a certain level set for your filing status. You may have heard that Social Security income is not taxed after age 70; this is false.
Will there be Social Security in 2050? ›
Will Social Security still be around when I retire? Yes. The Social Security taxes you now pay go into the Social Security Trust Funds and are used to pay benefits to current beneficiaries. The Social Security Board of Trustees now estimates that based on current law, in 2041, the Trust Funds will be depleted.
Social Security's special minimum benefit pays at least $49.40 per month in 2023 and $50.90 in 2024. Social Security's special minimum benefit tops out at $1,033.50 per month in 2023 and $1,066.50 in 2024. You'll receive 100% of the benefit if you file at full retirement age or later.
How do I get the $16728 Social Security bonus? ›
Have you heard about the Social Security $16,728 yearly bonus? There's really no “bonus” that retirees can collect. The Social Security Administration (SSA) uses a specific formula based on your lifetime earnings to determine your benefit amount.
What is the Social Security 5 year rule? ›
• If you become disabled before your full retirement age, you might qualify for Social Security disability benefits. You must have worked and paid Social Security taxes in five of the last 10 years.
What happens if Social Security runs out before I retire? ›
Reduced Benefits
If no changes are made before the fund runs out, the most likely result will be a reduction in the benefits that are paid out. If the only funds available to Social Security in 2033 are the current wage taxes being paid in, the administration would still be able to pay around 75% of promised benefits.
What to do when Social Security is not enough to live on? ›
Has your income declined or have you experienced a loss of financial resources? You may be able to get additional income through the Supplemental Security Income program, which helps seniors and the disabled who have limited income and financial resources.
Is Congress trying to reduce Social Security benefits? ›
80% of House Republicans released a Budget that:
Calls for over $1.5 trillion in cuts to Social Security, including an increase in the retirement age to 69 and cutting disability benefits. Transitions Medicare to a premium support system that CBO has found would raise premiums for many seniors.
What happens when retirees run out of money? ›
If you run out of money in retirement, you may face financial hardship and reduced quality of life. You may need to rely on family members or government programs for financial assistance, reduce your standard of living, or make significant lifestyle changes.
What happens if Social Security is cut? ›
At the same time, the average monthly benefit amounted to a modest $1,688 in 2023. Millions of people rely on Social Security to provide at least basic financial security. Cuts to these benefits would sharply reduce financial security for a broad swath of people. Increasing the retirement age would be such a cut.
What happens to leftover Social Security money? ›
Any unused money goes to the Social Security trust funds, not a personal account with your name on it. Many people think of Social Security as just a retirement program. Most of the people receiving benefits are retired, but others receive benefits because they're: Someone with a qualifying disability.
