Is Social Security Going Bankrupt?
The number of people receiving Social Security benefits now exceeds the number of people paying in. If nothing is done, the trust fund will be depleted by 2035, at which point benefits will need to be cut.

While changes are inevitable, it will likely take some time before a decision is made. Politicians from both sides will use Social Security as a bargaining chip, in hopes of securing more votes. When that time comes, here are some of the changes that we might see…

Reducing Benefits
The worst case scenario would be a reduction in benefits. While this is not ideal, Social Security is projected to cover 83% of benefits by 2035. While I think this solution is unlikely, it’s worth reviewing how this solution would affect your financial plan.

Lifting the Cap on Earnings Subject to Tax
Social Security is funded through payroll tax shared by employers and employees. Each party contributes 6.2% of wages, with a maximum taxable amount of $168,600 (in 2024).

It has been proposed to also tax earned income above $400,000. By taxing high earners more, Social Security’s financial strain could be reduced.

Increasing the Full Retirement Age
This has been done in the past, and it is possible that it will be considered again. As people live longer, aligning the retirement age with demographic shifts could be a viable adjustment. Currently, the full retirement age for individuals born in 1960 or later is 67.

Raising Payroll Tax Rate
Raising the payroll tax rate offers a simple solution. It’s estimated that increasing them from 6.2% to 7.75% for both employers and employees will be enough to pay 100% of benefits in 2035. However, there will likely be pushback trying to raise taxes.

Reduce the Annual COLA Adjustment
In recent years, cost-of-living adjustments (COLA) have been as high as 8.7% to align with the rise in inflation. However, there is a possibility that the measurement method could be changed, leading to a reduced overall benefit.

Self-Funded Retirement
Since the 1980s, 401(k) plans have supplemented pensions as a leading retirement option, shifting the responsibility for savings from employers to individuals.

It’s possible the government does something similar by creating a self funded retirement account. While this may seem like an attractive option, it is important to consider the potential drawbacks. Mandatory Social Security contributions play a crucial role in helping individuals save for retirement, particularly those who might not prioritize saving on their own.

Borrow More Money
The common solution to many of our countries’ spending needs is to borrow more. If none of the above is implemented, this is the most likely solution.

Bottom Line
Social Security is not going bankrupt. It’s a critical source of income for many retirees and one of the most important government programs ever created. While it’s not at risk of bankruptcy, changes are necessary to ensure individuals get their full benefit. No politician wants to be known for reducing Social Security benefits.

George Maroudas, CFP®

George Maroudas, CFP®

Twitter @ChicagoAdvisor

Disclaimers / Sources:

Social Security 2024 Trustees Report from

How is Social Security Financed from

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.