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If you read headlines saying Social Security isn’t going bankrupt or insolvent, they are right, but that doesn’t mean there is nothing to be concerned about.
Social Security is headed toward depleting the retirement benefit trust, but as long has there is incoming tax revenue, reduced benefits will be paid.
However, many retirees with feel the impact of an immediate 19-20% reduction in benefits. That will put some into poverty.
According to the latest projections from the Social Security Trustees Report, upon depletion of the combined OASI and DI trust funds (expected around 2034), benefits would initially be reduced to about 81% of scheduled levels, resulting in a roughly 19% cut. (estimated % vary and can change).
However, reduction would not remain static; the payable percentage is projected to decline gradually over subsequent decades due to ongoing demographic shifts, such as an increasing ratio of retirees to workers and scheduled benefits growing faster than revenue from payroll taxes.
These changes would occur incrementally each year as the actuarial imbalance worsens, rather than as a one-time event.
Unfortunately, as treasury bonds assigned to the Trust are redeemed to pay current benefits, we are demonstrating the need for a trust reserve and assuring it is maintained.
As the bonds are being redeemed and not replaced, interest paid to the trust also declines. If benefits are reduced, income taxes paid on SS benefits which go into the Social Security and Medicare trusts are also reduced.
It’s all connected and not recognizing that is our big mistake Even while all this is happening, many people are seeking higher benefits and lower taxes. Go figure😱
Congress must act to adjust taxes, benefits, or other factors to prevent or mitigate reductions.
Social Security is the least of our troubles. At least it is a tax that mostly pays for the benefit it is for. Even when the “trust fund” is off the books in a few years, SS will be running a deficit of only about 20% and will be less than 10% of our total budget deficit, which will be something like 2.5 trillion per year at that point. We’ll be spending more on interest payments on debt that had nothing to do with social security, than on SS payments themselves.
Objectively, the slow burn of the SS shortfall is the least destructive fiscal fire we have. But, rest assured, at the last minute, congress will come together and come up with the least equitable solution possible and “solve” the shortfall. Some of us (likely most on this forum) will get substantially reduced benefits and/or higher taxes, and others won’t see any impact at all.
86 million eligible voters did not vote in the 2024 election. I assume they do not care about their own self-interest or are so fed up that they don’t think it matters who wins elections. They don’t care that a convicted felon became president or that our legislature seems unable to help Americans who need help. Why does anyone think they will care more about Social Security than the myriad other issues that directly affect their desperate lives?
Howard, the red arrows aren’t necessarily because people disagree. They are because we don’t do politics here. So rather than debate how we got into a particular mess, we suggest ways to deal with it in our own lives.
Becoming mired in a political argument will destroy HumbleDollar.
You might get a kick out of quinnscommentary.net
It’s Dick Quinn unleashed.
Trying not to be political, but I think we have larger and more pressing problems facing our country as of this moment that need addressing than the SSA deficits. If we can’t take care of our current challenges, I’m not sure how well we can orchestrate a successful landing with Soc Sec. Many of our trading partners & allies that we do business with are holding a significant amount of treasuries and settle many of their financial transactions with dollars. If those two start unraveling, Soc Sec deficit may be the least of our problems.
Reagan signed 1983 SS bill in April of 1983 when the program’s actuaries said the program was 3 months away from being unable to pay full benefits. Congress is at least as ineffective now as it was then
I started my structured retirement strategy in my late 20’s. One of the tenets I wrote down at the time was “ assume no Social Security”. There was much press about the looming impact of Baby Boomers on the SS system. Since I fit into the very latter part of that cohort, I decided to completely ignore Social Security in all my retirement ( and now spend down) plan calculations and spreadsheets and have never wavered to this day. My conservative, perhaps pessimistic approach back in the early 1990’s has been replaced with indifference today as it pertains to my starting to receive any benefits when I turn 70 in the early part of the next decade. I genuinely hope those who need it will continue to get what was “ promised”. For younger people my advice is “ don’t count on SS in your planning. Then you can only be surprised and delighted if you ever see even $1 vs possible disappointment and lost sleep”.
The consequence of cuts to SS are losses at the voting booth for whichever party is suicidal enough to allow that to occur, hence I don’t see it happening. Just another debt to kick down the road.
The funding issue with Social Security is the tip of the iceberg. There are several ways to deal with the financial problems facing the U.S., which is getting worse. 1) Tax our way out. 2) Reduce benefits (SS, Medicare, etc.). 3) Debase the currency. 4) Grow the economy.
Taxation and printing money seem to be the preferred approaches. We now have zombie States that borrow money to pay pensions. Medicaid is also at risk. It should get very interesting “Excitement Guaranteed”.
Assuring that any new spending is fully paid for and does not add to deficit is a place to start.
It is March 15, 2033. Congress is in session at 1 AM. If they don’t pass a bill, SS will be cut in April. Millions of retirees are watching the session on streaming video. The Senate allows each senator who wants to speak 3 minutes. Every senator who speaks ignores the budget deficit, and supports the bill – oh, the millions of retirees living in my state will be reduced to poverty if this bill does not pass. At 2:30 AM a vote is called, and the bill passes 99-1.
Yea, that’s about right, Ormode.
Don’t know about anyone else, but the amoun of the increase in my medicare deduction was greater than the amount of the increase in my overall Social Security payment.
So my 2026 net payout is actually LESS than my 2025 net payout was.
Hold harmless law prevents that for everyone except those paying IRMAA so the great majority of retirees don’t have that happen. The bad news is that the application of hold harmless increases premiums for others to make up the lost revenue.
I’m pretty sure that’s been the case for decades
Same here. Met my long lost aunt IRMMA for the first time in 2024 after going over by $512 resulting in an extra $2,297 in Medicare payments. I don’t object to higher payments based on income, but the cliff seems a little steep from my perspective.
Haha ‘long lost aunt’…
Wow, sorry to hear that. There are a few (several?) cliffs in the tax code that should’ve been addressed in last bill (IRMAA, child care). Curious if your situation was avoidable or was just an unfortunate case based on how your income(s) shook out?
Hasn’t IRMAA always used cliffs? I’m not aware of any changes to IRMAA in OBBBA.
You’re right.
One hidden benefit in Medicare is a program to provide “extra help” to Medicare beneficiaries for prescription drugs. This Low Income Subsidy (LIS) is applying to more and more people each year. That is part of the uncontrolled cost of medical care that drives the Medicare Part B premium.
You should assume the Part B premiums will continue with high increases for years to come. Actuaries are using rates of over 8% for current projections. So the 9% increase in 2025 is not unexpected.
A few thoughts on Social Security –
As mentioned below, Grandma votes and there are a lot of Grandmas
The government owns the printing press- see MMT (MMT -another subject for debate another time)
Social Security will definitely be different for the generations behind the Baby Boomers
Has anyone calculated the “Death Rate” of the Baby Boomers past peak age and the reduction in SS demand going forward?
According to Gemini, the deaths in the US are projected to peak in 2055 and then slowly decrease. While Boomers had a smaller birth rate than their parents, their large numbers resulted in a large number of Gen Xers (1965-1980).
I’ve long agreed with Mr. Q that, despite financial concerns, the Social Security system was essentially stable. I also believed that, because the beneficiaries of SS benefits are older folks who are influential voters, Congress would act to avoid benefit cuts or wholesale negative changes to the program.
But the recent apathy in Congress toward any thoughtful action – evidenced by no meaningful health care reform to assist an even broader constituency – is really problematic. Will Congress act on Social Security? Can Congress act? And if it does, will it be in a logical, helpful way? All questions that can’t be answered today.
Does the predicted reduction in SS benefits include the increase in the amount of Part B premiums that will be dedected? There is also an article in today’s WSJ that projects IRMAA charges alone are projected to increase 30% from 2026 to 2030.
You can assume Part B premiums increasing 6-8% a year. If you go the SS Trustee report you can see their estimate for several years in the future.
There is also a hold harmless provision that protects Part B from reducing SS benefit IF the retiree is not paying IRMAA.
Gosh, this seems a little unfair. FIrst, the IRMAA surcharges and then a reduction in a person’s net Social Security benefit each year.
That is the price we pay for having a single retirement income at least $20,000 more a year than the median household income of all Americans.