AMERICANS across the country are fearing that the longstanding Social Security program is running out of money, with its two main trust funds soon to be depleted.
See what this means for your wallet, including how your Social Security benefits may take a major dip.
The Social Security program was rolled out in 1935 when President Franklin D. Roosevelt signed the Social Security Act into law, officially establishing a government-run system of social insurance for older Americans.
Funded via payroll taxes paid by workers and their employers, the 90-year-old program has since grown to provide financial support to over 70 million people, including retirees, workers who become disabled, spouses and children, and family members of deceased workers.
Social Security will hand out roughly $1.6 trillion in benefits this year, with the program consistently making up about one-fifth to one-fourth of the total federal budget.
The rising number of beneficiaries in comparison to the number of workers paying into the system has sparked concerns regarding the programs long-term financial stability, with Social Security less than 10 years away from insolvency, per projections from Social Security’s trustees.
The program’s two main trust funds are projected to become insolvent within the next few years, at which point they will no longer be able to pay Americans 100% of the benefits scheduled under current law.
BREAKING IT DOWN
The Social Security program has three main sources of revenue.
The first is Social Security payroll taxes, with 6.2% of a worker’s earnings going towards the payroll tax and their employer paying in an additional 6.2%, bringing the total contribution to 12.4%.
The Old-Age and Survivors Insurance, or OASI, trust fund, as well as the Disability Insurance, or DI, trust fund, act as supplemental sources of revenue to the payroll taxes.
For this reason, Social Security can never go fully bankrupt because new people are constantly entering the workforce and paying into the payroll tax.
However, the trust funds are running out of money, which means that Americans may see a benefits cut in the coming years.
The program’s OASI trust fund, which distributes checks to retirees and survivors, is expected to reach insolvency in 2033.
At that point, the fund’s reserves will become depleted and incoming payroll taxes will only be enough to pay 77% of total scheduled benefit, a 23% reduction, per the 2025 annual report.
If the two trust funds were combined, they would be depleted in 2034, according to the report, and pay out 81% of scheduled benefits at that point.
Some analyses have suggested even earlier insolvency dates and greater benefit cuts.
HOW TO SUPPLEMENT YOUR SOCIAL SECURITY
Here’s how to supplement your Social Security:
Given the uncertainty surrounding Social Security’s long-term future, it’s essential for workers to consider ways to supplement their retirement income.
Senior Citizens League executive director, Shannon Benton recommends starting early with savings and investing in retirement accounts like 401(k)s or IRAs.
- 401(k) Plans
- A 401(k) is a retirement account offered through employers, where contributions are tax-deferred.
- Many employers also match employee contributions, typically between 2% and 4% of salary, making it a valuable tool for building retirement savings.
- Maxing out your 401(k) contributions, especially if your employer offers a match, should be a priority.
- IRAs
- An Individual Retirement Account (IRA) offers another avenue for retirement savings.
- Unlike a 401(k), an IRA isn’t tied to your employer, giving you more flexibility in your investment choices.
- Contributions to traditional IRAs are tax-deductible, and the funds grow tax-free until they are withdrawn, at which point they are taxed as income.
“For the American public to have any confidence in the Social Security system, the US needs to make changes that address impending cuts,” Erin Floyd, Social Security department manager at Farah & Farah, told The U.S. Sun.
Floyd said that the Social Security process is already more challenging and time-consuming than ever, with the current system “overburdened and riddled with delays.”
“A glaring consequence of the current system is that it’s the most vulnerable who suffer the most when delays occur,” said Floyd, noting that the projected cuts would only worsen the issues over at the SSA.
She emphasized that the agency is in dire need of a solution that not only addresses the numbers, but also “fixes the structural problems and ensures a more efficient, compassionate system.”
COUGH IT UP
In order to avert the benefit cuts, Congress would need to immediately reform the program, permanently bumping up payroll taxes by 3.65% – an increase from 12.4% to 16.05% – per estimates from the program’s trustees.
However, some experts have said that is not realistic.
For a median worker entering the workforce at 22 in 2025, the tax bump would deplete their lifetime earnings by over $110,000 over 45 years of work, per an analysis from the Cato Institute.
“It would be incredibly economically destructive because of the extremely high marginal tax rates that it would impose on, say, small business owners, for example, where you would be at a level of taxation where you would actually collect less in taxes at a higher rate,” Romina Boccia, Cato Institute’s director of budget and entitlement policy, told Fox Business.
She said the Laffer Curve effect would play a role, with the greater tax rate “affecting incentives so measurably that people will work less and try to avoid that punitive level of tax states.”
The effect would be especially noticeable in states with already high tax rates, like California and New York, according to Boccia.
As the SSA confronts its insolvency crisis, millions of Americans will see their checks soar to $5,246 in just months.
Meanwhile, Social Security officials have clarified changes to its paper checks policy ahead of the September 30 deadline.
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