Is Social Security Going Bust?
In a word, NO. However, the Social Security Board of Trustees said that Social Security's trust fund is on track to run dry in 2032, a year earlier than projected last year. To understand what is happening, you may need a refresher on how Social Security works. Here goes!
Social Security is a pay as you go system, which means that people who are currently employed pay for the benefits of those who are retired, via payroll taxes. Every paycheck, you and your employer each pay 6.2 percent of your wages (up to the SS wage base, which in 2026 is $184,500) into Social Security.
In the late 1970’s and early 1980’s, Congress enacted changes to bolster the program. The net result of the legislation, along with the massive Baby Boomer generation paying into the system, was that the government took in more money from taxes than was necessary to fund the Social Security obligations. The excess money that accumulated in the Social Security trust fund was meant to act as a buffer when there were more people claiming benefits than money working people were paying into the system.
Flash forward and the same Boomers who helped boost the system started to claim their SS retirement benefits, and live longer than the previous generation, forcing the government to dip into the surplus. Since 2021, the trust fund began to shrink in absolute terms and according to this year’s report, will run dry in 2032.
What Happens in 2032?
When the trust fund is "depleted," the system does not halt (or “go broke”), rather payroll taxes keep coming in and benefits keep going out. But the money coming in will only cover about 78 percent of what promised benefits.
According to labor economist Teresa Ghilarducci of The New School, Social Security’s legal structure mandates that this scenario “would trigger across-the-board cuts to all retirees, regardless of income or need.” To put this immediate 22 percent cut into perspective, if a Social Security retiree had been receiving a $2,000 monthly check, she would receive only $1540, a $460 reduction.
Potential Fixes Prior to 2032:
Fixing Social Security is all about math, and unlike Medicare, we are talking about simple stuff. There are several straightforward options any responsible Congress could pursue, either individually or in combination:
Raise the payroll tax cap. Right now, Social Security taxes only apply to income up to $184,500 in 2026. If you make more than that, you stop paying Social Security taxes on the excess. Simply lifting this cap, say to $300,000, could solve a big chunk of the problem.
Increase payroll taxes slightly. Even a small bump in the rate workers and employers pay could make a significant difference over time.
Adjust the benefit formula. This could mean slightly reducing benefits for higher earners while protecting those who depend most heavily on Social Security.
Gradually raise the retirement age. This is my least favorite option, because it punishes those who work in physically demanding jobs.
What You Can Do Right Now
Use your voice! The political pressure from millions of voters tends to focus the minds of feckless legislators. Additionally, this is a time to take control of your retirement planning. Make sure that you have created an account at ssa.gov. Once you have done so, review your projected benefits, and as a precaution, factor in a potential 20 percent reduction when planning your retirement. You may find that boosting your other retirement savings will solve a lot of the future uncertainty of the Social Security system.