What Happens to Social Security Benefits if the Trust Fund Runs Short in 2033?

If you've kept an eye on the news lately, you've probably heard that Social Security is in big trouble. Its Old Age and Survivor Insurance (OASI) trust fund is expected to be depleted by the end of 2032. Combined with the Disability Insurance (DI) trust fund, the program could pay out benefits only until 2033.

That's not a lot of time, and it has many seniors worried about what will happen as the deadline approaches. The truth is, we don't know yet. But it might not be quite as bad as you're expecting.

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What could happen to Social Security if the trust funds become depleted?

Social Security's trust funds are dwindling due to an imbalance between the number of seniors claiming benefits and the number of workers paying into the program. The baby boomer generation increased the number of beneficiaries to new levels, and the generations after them have all been smaller, so the revenue from payroll taxes doesn't go as far as it once did, even though average incomes are higher today.

When those trust funds are depleted, Social Security will no longer be able to pay out all benefits as scheduled. The latest Trustees' Report estimates that an immediate 22% benefit cut would be necessary, and that benefits would decrease by a further 16% between 2033 and 2100.

That's obviously not good news, especially for those with little personal savings, but it's not the same as the program running out of money completely. It would continue to take in revenue from Social Security payroll taxes and the benefit taxes that seniors pay on up to 85% of their checks.

But before you get yourself worked up about what a 22% benefit cut could mean for your finances, you should know it probably won't happen. This isn't the first time Social Security has faced insolvency. If the past is any indicator, change is coming, but it won't bring a huge benefit cut.

What's likely to happen to Social Security instead

When Social Security was running out of money in the 1980s, the government stepped in and made several changes to keep it sustainable. It raised the payroll tax rate, added Social Security benefit taxes on seniors, and raised the full retirement age (FRA), which effectively acted as a benefit cut for younger workers.

Washington will probably employ similar tactics this time to keep Social Security afloat. What we don't know yet is who will shoulder the burden and how heavy it will be. Congress will have to decide that.

Many Americans favor increasing or eliminating the ceiling on Social Security payroll taxes. Currently, you only pay this on the first $184,500 of your 2026 earnings. Raising or eliminating this cap would force wealthy Americans to pay more into the program without affecting average earners. But even eliminating the taxable maximum wouldn't be enough to completely fix the shortfall.

Ordinary Americans will likely face increased taxes, which could disrupt some retirement plans. Workers may find it more difficult to save, while retirees may run out of money more quickly than they anticipated.

What you can do right now to prepare

Changing Social Security requires Congress to pass a new law. While several representatives have proposed bills that would do this, none have gained much traction. This is likely to change as the 2032 deadline approaches.

If you have strong feelings about what the government should do regarding Social Security, make your voice heard by reaching out to your representative and senator. Beyond that, you have to focus on what's within your control.

Save as much as you can on your own for retirement, and plan to revise your retirement strategy as soon as we know what changes are coming to Social Security. Have a backup plan in case you're not able to retire as planned. You might have to work a bit longer or come out of retirement and take a part-time job to supplement your checks. It's not ideal, but having a strategy in place may help you feel a little less nervous about what's coming next.

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