Is Social Security Going Bust?
The date that the trust fund runs dry has moved up
While all retirees who count on Social Security will take a hit when the trust fund runs dry, Baby Boomers make up the largest share of America’s retirees. Nearly all Boomers will be drawing their hard-earned benefits by time Social Security goes bust. Jill Schlesinger reports.
Amid the swirling news hype about the Knicks Championship run, annual inflation rising to a three-year high, and the historic SpaceX initial public offering, a far more impactful story got buried.
The Social Security Board of Trustees projected its trust fund would run dry a year earlier than projected last year.
This may seem like an old story, but the stakes and the timing are becoming more important. While the entire Social Security (SS) system is not going bust, it is facing important deadlines.
Social Security 101
To understand what is happening, here’s a refresher on how it works:
Social Security is a pay-as-you-go system, which means that people who are currently employed pay for the benefits of those who are retired, via payroll taxes.
Every paycheck, you and your employer each pay 6.2 percent of your wages (up to the SS wage base, which in 2026 is $184,500) into Social Security.
In the late 1970s and early 1980s, Congress enacted changes to bolster the program. The net result of the legislation, along with the massive Baby Boomer generation paying into the system, was that the government took in more money from taxes than was necessary to fund its obligations.
The excess money that accumulated in the SS trust fund was meant to act as a buffer when there were more people claiming benefits than money that working people were paying into the system.
Eventually, the boomers who boosted the system started to claim their SS retirement benefits, and live longer than the previous generation, forcing the government to dip into the surplus.
This demographic wave was widely known and discussed. According to Sarah A. Binder, Jason Brown, and Gopi Shah Goda at Brookings, “The Social Security Board of Trustees has been warning that the trust fund would be depleted over the 2030s for some time … since 2009 the Trustees have consistently projected depletion before 2040.” Since 2021, the trust fund began to shrink in absolute terms and according to this year’s report, is likely to run dry in 2032.
What happens in 2032?
When the trust fund is “depleted,” the system does not halt (or “go broke”), rather payroll taxes keep coming in and benefits keep going out, meaning the money coming in will only cover about 78% of promised benefits.
According to labor economist Teresa Ghilarducci, Social Security’s legal structure mandates that this scenario “would trigger across-the-board cuts to all retirees, regardless of income or need.” So, if a retiree had been receiving a $2,000 monthly check, she would receive only $1,560, a $440 reduction.
Potential fixes prior to 2032:
There are several options any responsible Congress could pursue, either individually or in combination:
Raise the payroll tax cap
Currently, Social Security taxes only apply to income up to $184,500 in 2026. Lifting this cap, say to $300,000, could solve a big chunk of the problem.
Increase payroll taxes slightly
Even a small bump in the rate workers and employers pay could make a significant difference over time.
Adjust the benefit formula
This could mean slightly reducing benefits for higher earners while protecting those who depend most heavily on Social Security.
Gradually raise the retirement age
The least favorite option, especially for those who work in physically demanding jobs.
What you can do right now
Use your voice! The political pressure might focus the minds of feckless legislators to act. Additionally, create an account at ssa.gov, and review your projected benefits.
If you are anxious, you could factor in a potential 20% reduction when planning your retirement, and if possible, boost your other retirement savings.
Should You Take Social Security Early?
Should You Take Social Security While Still Working?
Jill Schlesinger, CFP, is a CBS News business analyst. A former options trader and CIO of an investment advisory firm, she welcomes comments and questions at askjill@jillonmoney.com. Check her website at www.jillonmoney.com.
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