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My view is that nothing will be done to fix the funding of Social Security through 2028 thus leaving people with concern for their future and to ponder rumors and misinformation. The latest report from the Trustees that should have been released by now is not available yet, but here is a summary from the last in 2024.
My opinion is to be conservative when planning your retirement in the next few years, and use 80% of your current projected Social Security benefit. I still don’t think it will come to that, but then again a didn’t think a lot of things in the political arena could happen, but have.
Better to be extra conservative in your planning for now instead of creating your own crisis later.
The projected actuarial deficit for the combined trust funds over the next 75 years is 3.50% of taxable payroll. So, raising the payroll tax by 1.75% on employer and worker gets the job done. That comes to about $20.90 per week based on BLS median worker earnings data.
Summary from latest Trustee report:
“• The Old-Age and Survivors Insurance (OASI) Trust Fund will be able to pay 100 percent of total scheduled benefits until 2033, unchanged from last year’s report. At that time, the fund’s reserves will become depleted and continuing program income will be sufficient to pay 79 percent of scheduled benefits.
• The Disability Insurance (DI) Trust Fund is projected to be able to pay 100 percent of total scheduled benefits through at least 2098, the last year of this report’s projection period. Last year’s report projected that the DI Trust Fund would be able to pay scheduled benefits through at least 2097, the last year of that report’s projection period.
• If the OASI Trust Fund and the DI Trust Fund projections are combined, the resulting projected fund (designated OASDI) would be able to pay 100 percent of total scheduled benefits until 2035, one year later than reported last year. At that time, the projected fund’s reserves will become depleted and continuing total fund income will be sufficient to pay 83 percent of scheduled benefits.”
Note that combining the two funds extends the crisis date, but fixes nothing. Congress previously used a bandaid by transferring assets from the disability fund to the Old Age fund.
We haven’t changed our projections but the state of SS was one of several factors my wife and I considered last year when we bought 3 QLACs starting 2036.
A link to the current report:
https://www.ssa.gov/OACT/TR/2024/
Thing is, it’s not current, the report dated 2025 should be out by now.
Yes, and thanks Dick, your excellent post was clear on that. Until today, I’d never read one of these so even a year-old report was fine for me.
If SSA is consistent, the new report should follow the same URL format but end in …/2025/ once released. We may see the new one in July this year.
The latest version of the tax bill approved by the House does not make SS income tax free, but adds an extra $4,000 tax deduction with income limits. Instead of directly harming SS, it increases the deficit.
Given moderate and low income retirees pay little or no income taxes, it’s hard to see how this actually benefits most retirees.
The correction that was needed, in lieu of making SS not taxable, would have been to update the brackets, which were established in 1983, and never tired to inflation.
I will take the extra $4K but it is not what was promised and will not really benefit most beneficiaries, since most (60%) of them are already not paying income taxes of their benefits.
If the bill is passed as constituted (which I doubt) I will “use” the extra 4K deduction to increase my Roth conversions by that amount in ‘26 without increasing my tax bracket. Just goes to show how congress continues to create tax law to benefit the wealthy, not lower income citizens (who will be hurt the most financially by tariff policy).
We are once again in a (modified) Robber Baron era where the rich keep getting richer (income inequality), and monopolies thrive perpetrated by government policy.
How much would a $4,000 deduction actually be worth at the average effective tax rate? Not much, actually less than $400.
The extra $8k deduction for a married couple, IF you’re in the Social Security tax torpedo range, and IF you’re 65+ , and IF you file jointly (a lot of IFs there, have I left any out?), could result in a temporary tax reduction of $1,776 (12% bracket), and scaling up from there for higher brackets. Still, “an extra 4k deduction for a couple of years” (it expires in 2028) is a rather far cry from a campaign promise of “tax free Social Security for everyone!”
I doubt very many people are going to be impressed by this, notwithstanding the fiscal irresponsibility of making all Social Security payments tax-free without replacing that lost revenue with extra taxes from some other source. You’ve said it many times before–“We Seniors” want all these benefits, but expect “Someone Else” to pay for them. I think you may be onto something there…
To qualify, single seniors must have a modified adjusted gross income under $75,000; married couples under $150,000.
It will be a travesty if Roth distributions are excluded from this MAGI as it is for IRMAA. Income is income.
I’m not utilizing the deduction for tax saving as much as I am being happy to be able to convert the extra 4K per year. I’m trying to convert all of my wife’s traditional to a Roth over the next four years (before we both claim Social Security at 70) while trying to stay in the 12% tax bracket. I have five tax years left to accomplish this so in ‘26-‘28 would be able to convert a total of an extra 16K while staying in the12% bracket if that provision makes it through to become law.
Does converting at your age give enough time to have tax free future earnings exceed what you pay now in taxes when future withdrawals over time might old lower taxes?
I felt I was too old to make conversions worth while once I was well into 60s
The plan is the Roth monies are the last, if ever to be touched. If my wife lives to 100+ like her mother it will have 30+ years to grow before my children inherit it. At some point I will instruct them that the best fiscal decision is to not access until 10 years after her passing. If so that could be 40+ years, so I’d say that is plenty of time.
Once we hit 70 and claim, our Social Security statements report our income will exceed $85K. This exceeds our current expenses, so if we have to tap my IRA, which is twice my wife’s current balance, it will be minimal, or RMDs starting at 73.
I think a lot of traditional to Roth IRA conversion planning is also to smooth your lifetime taxable income into the lower bracket rates (12% or less) before RMD’s and SS benefits start to not waste income that you could choose to recognize now that would fall into the lower tax brackets. Typically when the first spouse dies the survivor is pushed quickly into the compressed higher single bracket ranges assuming the surviving spouse is the primary beneficiary.
I do think such conversion planning may be premature until we see what comes out from the Senate.
Bill, your first paragraph was my thinking even before the potential changes. The only difference is the $4K additional deduction will allow $16K in additional conversions before my wife turns 70 while maximizing the 12%% tax bracket. After claiming Social Security with my RMDs at 73, and my pension we may very well be pushed into the next bracket, based on current/proposed legislation
We think our kids have it tough now in saving for and planning their future retirements, they are the ones that are going to be “taxed” to bail out SS in the future or deal with even worse government deficits. Awful! 😞
Yes they are and grandchildren as well.
This is such a moving target. For example, are tips subject to SS deductions? If taxes on tips are eliminated will that reduce the SS tax collected? The recent change (increase) in SS benefits to certain public employees previously excluded will increase the payouts.
I agree that incorporating a 20% benefit reduction when making retirement financial calculations is prudent. However, if I absolutely needed that 20% to pay bills than I’d immediately begin researching how to reduce my expenses to accommodate such a reduction, were it to occur. Any money that is unspent each year could create a buffer.
Per JCX-21-25
The proposal provides a federal income tax deduction (the “tip deduction”) equal to the qualified tips that an individual receives during any taxable that are included on Form W-2’s, 1099-K’s or 1099-NECs, or reported by the taxpayer on Form 4317 (or successor)
My underline & bold of the word income.
My understanding of the proposed bill, if the House has not made changes in this section, is the amount of tips received will in effect be a deduction before adjusted adjusted gross income thus net tips received will not be subject to income taxes but tips received will still be subject to social security and Medicare tax.
Considering the size of the standard deduction this proposed change may not change the combined income tax and social taxes actually paid a tipped employee.
Similar idea is floating around for the SS tax exclusion. I’m pretty sure it is above the standard deduction at least for SS. In any case making any of this income, including OT tax free is pandering nonsense.
The poor waiter or waitress will have to deal with the additional complexity when they prepare their personal return. I am also thinking of a screwed up 1040 preparation then impacting a student’s FAFSA.
I agree with your expectation that nothing will be done to fix the funding of Social Security through 2028 but I expect the timing of any fix it solution will yet again be the can kicked further down the road until the trust fund gas tank has nothing but fumes, maybe in 2034 or 2035, before any actions are taken to address the social security program funding shortfall.
Dr. Alicia Munnell wrote an opinion piece yesterday, 5/20/2025, in her MarketWatch Encore Series titled “Social Security is loved by people across the political spectrum — that’s not enough to save it” about a long somewhat bipartisan survey of about 2,000 respondents on their views of Social Security and possible ways to eliminate the program’s 75-year deficit.
Dr. Munnell to a large extent did not care for the survey solution results that were in essence – They want only high earners to pay for the fix. I agree with her reasons why she does not like the survey respondents fix as it dissolves any link between payroll tax contributions and benefits, which in the long run could well undermine support for the program.
Her preferred solution can be found in a 2/11/2025 article she also links from Brookings titled Fixing Social Security. The article sets goals for fixing the plan divided into groupings titled Solvency, No benefit reduction for current beneficiaries, No general fund financing, Maintain the bipartisan nature of the program, Improve the system’s progressivity, Increase risk protection and Universal participation.
Goals are great but actions are needed. I am trying to plan my personal financial actions accordingly to mitigate the risks that any change in my future social security benefits does not wreak our plans.
I’m thinking this will be addressed as a platform issue during the 2032 election cycle. By then it will probably be ugly, but that’s how our system seems to work. I haven’t heard a peep about addressing the SS trust from the current administration (though I’m not listening that closely anymore) and I think the next admin will be mostly focused on undoing/strengthening the work of this current admin.
The most frustrating thing is that it is easy to fix and would be easier is done gradually and regularly all the time.
There’s also political reality:
I’m curious if others see this differently? Do you think they can cut benefits by 23% and not have a political consequence? Perhaps, do you think that Congress has become so dysfunctional that they won’t be able to avoid the consequences?
Scott:
Just as they did in 1983, Congress will wait until the last minute. I suspect the 2032 Congress will be forced to take action on this issue, whether they want to, or not.
I foresee a “pandering fest” of promises upon promises, amid a flurry of lies and finger pointing.
The solutions are not rocket science and have been known for a considerable period.
A 20% reduction in benefits on the size of the population affected will guarantee a wholesale turnover in Congress, and as one who would be affected by their inaction, it would almost be worth it to see them thrown out of office.
Agree, and having used a non-partisan think tanks how do you fix SS thingamabob I can tell you there are maybe 12-15 lower impact knobs they can turn to manage things.
My only concern with seeing Congress booted out wholesale is, who replaces them, never assume it’ll be an improvement!
I agree.
I agree with your advice to reduce the value of projected benefits by 20% for future planning purposes. Better safe than sorry.
You have relayed sensible proposals from the Trustees and others, both here and in prior posts. It makes me wonder why Congress has so far failed to act. It seems many politicians prefer a “free market” solution. Like shifting away from taxpayer supported SS and toward individual investment accounts, or something similar, and so reluctantly vote to fix the funding problem only because so many voters desire it.
Other than writing to one’s Congressional representatives, there is nothing one can do to change what might happen with SS.
Furthermore, there is, for most people if they are not retired, no way to suddenly increase what they earn. And I think that most readers of HD are already saving and investing as much as they feel they can. About the only thing they could do is to work longer if that was possible.
Those who are retired will just have to deal with whatever happens and adjust our source of $$ as necessary.
So, I for one won’t spend any time thinking about SS.