Social Insecurity 2033
Hours before the Federal Reserve said that it would leave short term interest rates at 4.25-4.5 percent (no surprise there), a more impactful announcement emerged from the Social Security Board of Trustees. Social Security's trust fund is on track to run dry in 2033, which means the program and every recipient will be subjected to automatic cuts that will slash benefits by 23 percent unless Congress finally gets its act together.
You are likely familiar with this story, because it has been forming for more than 20 years. In its 2014 report, the trustees put it bluntly: “Neither Medicare nor Social Security can sustain projected long-run program costs in full under currently scheduled financing, and legislative changes are necessary to avoid disruptive consequences for beneficiaries and taxpayers.”
Social Security 101:
As a reminder, Social Security is a pay as you go system, which is funded by payroll taxes (that’s the FICA line item you see on your pay stub). Every paycheck, you and your employer each pay 6.2% of your wages (up to the SS wage base, which in 2025 is $176,100) into Social Security. In the late 1970’s and early 1980’s, Congress enacted changes in Social Security, which resulted in the government taking in more money from taxes than was necessary to fund the Social Security obligations, creating a surplus. That excess money accumulated in the Social Security trust fund, which acts as a buffer when collections don't match payments – in other words, when there are more people claiming benefits that exceed the amount of money that working people are paying into the system.
Ok Boomer!
Baby Boomers, through no fault of their own, are both the heroes and the villains in the Social Security story. During the working years, their raw numbers, along with Congressional action, boosted the program’s finances. But as they started to retire, claim their benefits, and live longer, Boomers have been depleting the trust fund’s surplus. Starting in 2021, the trust fund began to shrink in absolute terms.
So much has happened over the past decade, and yet back in 2014, the Trustees report projected that the Social Security trust fund will be depleted in 2033, matching the current warning! In 2014, the trustees emphasized that “continued delay in legislating corrective measures is likely to make the challenge ever more difficult to resolve and result in undesirable consequences.” Because there has been no legislative action on SS, the time horizon is shortening to just eight years to fix the issue.
What Happens in 2033?
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 77 percent of what promised benefits. Just prior to the publication of the Trustees’ report, economist Teresa Ghilarducci and her team at the Schwartz Center for Economic Policy Analysis (SCEPA) at The New School, wrote extensively about what’s at stake in America’s Retirement Crisis Hits a Breaking Point.
They note that 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 23 percent cut into perspective, in May 2025 the average Social Security retirement check was just over $2,000, but if the trust were to be depleted, this person would receive only $1540, a $460 reduction.
Potential Fixes Prior to 2033:
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 $176,100 in 2025. 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.
The 2033 deadline isn't some distant hypothetical anymore, it's around the corner. Whether you're 25 or 65, this affects you. If you're young, you've got time to adjust your retirement planning. If you're closer to retirement, you need to understand what reduced benefits could mean for you.
Ghilarducci ends her report with what may seem obvious, but it bears repeating:
“Social Security has never missed a payment in nearly 90 years. It is not only a financial program, but also a promise, an intergenerational commitment that must be honored. Protecting and strengthening Social Security is not just good policy; it is a moral imperative.”