Social Security is one of the most successful government programs of all time, as it has kept millions of seniors out of poverty. But, there's some concern for its future, and rightfully so.
Social Security is not going to run out of money, but that doesn't mean there is not a problem. In fact, a recent report from the Congressional Budget Office suggests that the program's day of reckoning could be here sooner than previously expected.
Here's what this means for you.
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Social Security could face this dreaded fate as soon as 2032
According to the Budget and Economic Outlook for 2023 through 2033 that was recently prepared by the Congressional Budget Office, the Old-Age and Survivors Insurance trust fund will be exhausted in 2032. This is more commonly known as the Social Security Trust fund.
It's not a surprise that the Trust Fund is soon slated to run out of money. In fact, each year, the Social Security Trustees prepare a report indicating that the fund will soon be depleted. But, the Trustee's most recent report projected the money would run out by 2034 (or 2035 if combined with a separate disability trust fund, which the trustees project will occur).
The new CBO data is not as optimistic with its estimate about when the money will run out. The timeline for the depletion of the fund has been pushed up, in part, because retirees received a large Cost of Living Adjustment in 2023 to help benefits keep pace with surging inflation. The added money being paid out is only increasing concerns about Social Security's future solvency.
What does this mean for you?
While it would be very bad news indeed for the Social Security trust fund to run dry, the outcome may not be as bad as you might fear.
That's because you wouldn't end up getting $0 benefits if there's nothing left in the trust. Social Security could keep paying out benefits from the revenue being collected as current workers pay Social Security taxes on earnings. And the incoming tax revenue would be enough to cover about three-fourths of promised funds to retirees.
A huge cut to Social Security income could put a lot of strain on retirees who already receive benefits that are far too little to live on. Retirees and workers both need to be aware this is a possibility and make plans accordingly, which can include increasing the amount you're saving in a retirement plan or preparing for potential budget costs.
Of course, the most likely outcome is that Congress will take some action to prevent a big benefits cut when the trust fund runs dry. Lawmakers have already been haggling for years over solutions to shore up the trust fund, with various proposals including an increase in full retirement age, a change to how COLAs are calculated, and an increase in taxes to provide more money to fund Social Security.
But, there's been no consensus so far on how to make sure the trust fund doesn't go broke, and there's no guarantee a solution will come in the coming years even as the clock begins to tick and the day of reckoning draws closer. Retirees should be prepared for the possibility a benefits cut will happen if lawmakers can't find a solution.
