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
Reduced Benefits
What happens if they end Social Security? ›
Even if the trust fund becomes depleted, the Social Security Administration will continue to take in payroll taxes from workers and their employers, allowing the program to pay the majority of benefits, experts note.
Why am I paying Social Security if its going to run out? ›
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.
Will there be Social Security in 2050? ›
If changes are not made very soon to the Social Security system, Zigmont said, retirees in 2050 will be getting reduced payments — if they get payments at all. On the other hand, people who plan for their own retirement and look at Social Security as a bonus may be well off, Zigmont said.
What will replace Social Security benefits? ›
In the proposals presented to the Commission, the use of retirement bonds--and annuities based on bond accumulations- would also replace the entire benefit structure of Social Security for the future.
Will Social Security end in the future? ›
If no changes to the system are made, the Social Security Administration will be unable to pay scheduled benefits in full and on time starting in 2033; however, that doesn't mean you won't get any benefits.
What president borrowed from Social Security? ›
Bush 'borrowed' $1.37 trillion of Social Security surplus revenue to pay for his tax cuts for the rich and his war in Iraq and never paid it back”.
At what age is Social Security no longer taxed? ›
Bottom Line. Yes, Social Security is taxed federally after the age of 70. If you get a Social Security check, it will always be part of your taxable income, regardless of your age. There is some variation at the state level, though, so make sure to check the laws for the state where you live.
What is the 5 year rule for Social Security? ›
The Social Security five-year rule is the time period in which you can file for an expedited reinstatement after your Social Security disability benefits have been terminated completely due to work.
Can you live off Social Security? ›
Is Living on Social Security Alone Possible? You can potentially use Social Security alone to support yourself, but you would need to plan in advance to ensure that your monthly check will cover your necessary expenses at minimum, including your food and housing.
If you're a millennial, chances are you will receive (at least some) Social Security benefits when you retire, but you will need to supplement it just to pay for essentials. With careful planning, budgeting, and investing now in your retirement, you can create a more financially stable life for your future self.
What is the average Social Security check? ›
Social Security offers a monthly benefit check to many kinds of recipients. As of December 2023, the average check is $1,767.03, according to the Social Security Administration – but that amount can differ drastically depending on the type of recipient. In fact, retirees typically make more than the overall average.
What is the 10 year rule for Social Security? ›
If you've worked and paid Social Security taxes for 10 years or more, you'll get a monthly benefit based on that work.
What is the average Social Security check at 65? ›
For those who are collecting Social Security at age 65, the average payment in 2022 was about $2,484 a month, according to the Social Security Administration. That's based on the agency's estimate that the average annual benefit was $29,806 for Social Security recipients who are age 65.
What is the average Social Security check at age 65? ›
Whatever the case, the average monthly Social Security payment being made to 65-year-olds in 2024 is $1,505. That's $18,060 per year. The figure could have been smaller, by the way. The average payment for anyone claiming benefits at the earliest possible age, 62, is a little less than $1,300.
What is the Social Security 5 year rule? ›
The Social Security five-year rule is the time period in which you can file for an expedited reinstatement after your Social Security disability benefits have been terminated completely due to work.
What is the lowest amount you can get in Social Security? ›
This calculation looks at years of coverage in place of someone's earnings to estimate how much they might receive from Social Security. For 2024, the special minimum benefit starts at $50.90 for someone with 11 years of coverage and goes to $1,066.50 for workers with 30 years of coverage.
Will Millennials have Social Security? ›
If you're a millennial, chances are you will receive (at least some) Social Security benefits when you retire, but you will need to supplement it just to pay for essentials. With careful planning, budgeting, and investing now in your retirement, you can create a more financially stable life for your future self.
