You might be understandably worried by scary headlines that project the Social Security Trust Funds will be exhausted in the year 2035. Having accurate information is one of the best ways to deal with worry, so let’s look at what could happen if the Trust Funds run out.

Is It Possible That Social Security Funds Could Run Out?

Under current law, there’s no way that Social Security could completely run out of money. The reason is that workers are continually paying FICA taxes into the system. As long as people continue to work and pay their taxes, Social Security will have money to pay benefits to retirees and other beneficiaries. FICA taxes are the primary source of funding Social Security benefits, paying for about 80% of benefits for retirees, beneficiaries, and disabled participants.

It’s also important to note that Social Security’s Old Age and Survivor (OASI) and Disability Insurance (DI) Trust Funds are only a supplemental source of Social Security’s funding, currently paying for only about 20% of retirement, survivors, and disability benefits.

What Would It Mean If The Social Security Trust Funds Run Out?

There’s no precedent for the Social Security Trust Funds running out of money, so it’s impossible to predict with any accuracy what exactly could happen. Under the current law, benefits to existing retirees and beneficiaries would need to be reduced to the level that could be solely supported by FICA taxes paid by current workers at that time. According to the 2024 Social Security Trustees Report, benefits could be reduced by as much as 21% in total.

However, there’s no mechanism for describing how benefits would be reduced for specific retirees and beneficiaries if the Trust Funds run out. Possibilities include:

  • An across-the-board reduction of 21% for all retirees and beneficiaries,
  • A mechanism that protects a minimum level of benefits while applying larger reductions for benefits above the minimum threshold, or
  • By basing the reduction on total taxable income, reducing benefits of higher-paid retirees and beneficiaries more than the benefits of low-income retirees and beneficiaries.

Congress would need to agree on the mechanism for distributing any benefits reduction and pass a law for the president’s signature (more on this topic later).

How Would Current And Future Retirees Be Affected?

Again, there’s no mechanism for describing what happens to current vs. future retirees if the Trust Funds run out. However, there is a precedent to protect current retirees and older workers. The last major benefit changes to Social Security occurred in 1983, which protected benefits for current retirees and workers who were age 41 and older at the time of the changes.

How Would The Government Be Affected?

The federal government could avoid all the painful consequences described above if Congress could agree on and pass a law that prevents any benefits reduction. Possibilities include:

  • Increasing FICA taxes,
  • Reducing benefits, or
  • Approving other sources of funding, such as using general federal revenues to help pay for Social Security benefits.

None of these choices will be easy to pass. Predictably, Republicans favor reducing benefits while Democrats favor increasing taxes. The reality is, one or the other solution isn’t enough to make Social Security financially sustainable; a compromise that reduces future benefits and increases taxes will be necessary. Such a compromise represents the difficult task that our leaders need to address.

Social Security is the most popular federal government program, providing needed income to millions of retirees and disabled workers. If Congress allows benefit reductions to take effect, it could jeopardize the reelection of politicians who are deemed to be responsible for Social Security. It’s easy to imagine that each side of the political spectrum would blame the other side. But blame won’t pay benefits—we need to hold our leaders accountable to make the necessary changes to protect Social Security.

What Can People Do Now To Protect Their Retirement?

If you really believe that Congress will allow future benefits to be reduced, here are a few steps you can take to protect your retirement:

  • Urge your Congressional representatives to find a solution, and the sooner the better.
  • Consider saving and investing more to help make up for the benefits that you expect to lose.
  • Don’t let these concerns persuade you to claim Social Security benefits as soon as possible. For most pre-retirees, optimizing the value of lifetime benefits with a careful strategy to delay the start of your Social Security benefits is still the best strategy, even assuming that benefits will be reduced in the future. You won’t avoid the benefits reduction by claiming benefits early.

Whatever you do, don’t be complacent! Use your concerns to give you the energy to take action. Spend the time to learn how to best protect your retirement.