The Social Security Trust Fund Could Run Dry by 2032. Should You Rethink Your Retirement Strategy?

Workers in their 50s and 60s may be facing a serious retirement challenge in the near future. Social Security is currently paying out more in benefits than it receives in tax revenue and interest income each year. In six years, the program might not have enough money to pay out full retirement benefits.

The latest Trustees Report outlines a base case in which Social Security's Old Age and Survivors Insurance Trust will run dry before the end of 2032. That's a few months earlier than last year's projection that it would deplete its funds in early 2033.

When that happens, the program is expected to pay only 78% of the benefits due. Over time, payouts will continue to fall based on the actuaries' projections. So workers who were relying on Social Security in the next decade may need to rethink their retirement strategy.

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Don't panic

In the face of impending benefit cuts, claiming Social Security as soon as possible may seem like an appealing option. Getting 100% of a smaller benefit may be better than getting 78% (or less) of a larger benefit.

However, it's important to consider what will happen later. If the program is forced to cut benefits across the board, that means claiming early will have a severe impact on your finances later in retirement. Not only will you take a penalty for claiming early, but you'll also only receive a fraction of it once the trust fund runs out of money.

Claiming benefits early just to invest the funds may also seem appealing. However, if you continue to work while collecting benefits early in retirement, you may be subject to the retirement earnings test or increased taxes. It might not be as effective as simply allowing the delayed retirement credits you get from waiting to claim Social Security to add up over time.

The best course of action for many is not to change a thing about their Social Security claiming strategy. The program is designed to be insurance against outliving your retirement savings. The smartest strategy typically involves waiting well beyond 62 to claim benefits, ensuring you have enough income in your 80s and 90s to make ends meet.

But there's another important consideration. Congress has the power to act and preserve Social Security for retirees and those nearing retirement. If history is anything to go by, it will wait until the last minute to make significant changes to the program. That's exactly what happened in the 1980s, the last time Social Security neared insolvency.

While near-retirees may face some negative changes to the program, it's very unlikely they'll see their benefits slashed by more than 20% (if at all). In all likelihood, sticking with your existing retirement plan will produce the best results come 2032.

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