The trust fund that supports Social Security retirement benefits is projected to be depleted in the fourth quarter of 2032. At that point, ongoing revenue from Social Security payroll taxes is expected to cover approximately 78% of scheduled retirement benefits.
The Disability Insurance Trust Fund, by contrast, is projected to remain solvent through at least 2100. Combining the retirement and disability trust funds would enable Social Security to pay full scheduled benefits until the third quarter of 2034.
After that, combined trust fund reserves would be exhausted, and program income would be sufficient to cover about 83% of scheduled benefits. However, combining the two trust funds would require a change in federal law.
Teetering on the edge of bankruptcy? No
Given its enduring popularity, reform proposals focus on improving the program’s financial stability rather than dismantling it.
Even without new legislation to shore up its finances (and contrary to popular opinion), revenues from current Social Security taxes are available to pay most benefits. But that’s of little comfort to those who rely on or will depend on every “promised” dollar.
Twenty years ago, former Fed Chairman Alan Greenspan remarked that politicians could solve the problems facing Social Security in about 15 minutes. “It would take them 15 minutes only because 10 minutes would be used for pleasantries,” he quipped.
Waiting this late in the game to shore up the program’s finances has increased the financial challenges, but a solution is not out of reach.
Greenspan was right. This solution isn’t difficult.
- Raise payroll taxes,
- boost the amount of income subject to payroll taxes,
- tax compensation that is currently exempt,
- reduce benefits to current or future retirees,
- raise the retirement age,
- reduce annual cost-of-living adjustments,
- implement an asset/income test,
- invest some payroll taxes in the stock market (or individual accounts),
- or some combination of these measures.
But compromise is never easy. The proposed measures will face opposition to varying degrees. Consequently, it has been easy for legislators to kick the can down the road.
File now?
If you are nearing retirement, it might be tempting to file now or soon. You know, lock in your benefits so they can’t be reduced if Congress crafts new legislation.
But delaying benefits produces a higher monthly payout. You may choose that based on income needs, health, or marital status—not whether you can get in front of a possible future cut.
Although understandable, concerns about Social Security’s finances shouldn’t drive early filing to avoid a potential future benefit reduction. Most reform proposals would likely shield current retirees and phase in changes gradually, while claiming benefits early results in a permanent reduction in monthly payments.
However, there’s no ironclad guarantee that an eventual plan to stave off a reduction in payments wouldn’t impact your benefits.
All that said, the real debate is not whether the program should exist but how to strengthen its finances.
The leading proposals include higher payroll taxes, increasing or eliminating the taxable wage cap, gradually raising the retirement age, slowing benefit growth for higher-income retirees, or adopting a combination of these measures to restore long-term stability.
