Recent news about the status of Social Security's sustainability may have you questioning whether you will continue to receive your benefit. Before you jump to headlines, we hope that these insights will help you better understand the future of your Social Security benefit.
Bad News
The OASI Trust Fund reserves are now projected to be depleted by 2033. If the OASI and DI Trust Funds were combined into the Old-Age, Survivors, and Disability Insurance (OASDI) program, those combined reserves would be expected to run out by 2035.
Good News
The media often highlights the status of Social Security's trust fund reserves, but the primary source for funding benefits actually comes from payroll taxes collected under the Federal Insurance Contributions Act (FICA). In 2024, employees and employers each contribute 6.2% of income, up to $168,600, for Social Security through FICA. This setup means that even if the trust fund reserves are exhausted, most benefits could still be covered by the steady revenue from payroll taxes for many years into the future.
According to the latest report from the Social Security trust fund trustees, even if the OASI Trust Fund were exhausted, Social Security could still provide 83% of scheduled benefits in 2035, gradually declining to 73% by 2098. A 25%+ reduction in benefits over 70 years is not insignificant, but it is also not as catastrophic as some have made it out to be.
Possible Solutions
Suffice to say, policymakers are motivated to make adjustments that would keep Social Security on track to deliver full benefits well into the future. Several single-policy options could fully cover the anticipated 75-year funding shortfall. The latest trustee’s report outlines two that would cover the gap: either raising payroll taxes by 3.33% or reducing benefits by 20.8%.
A more practical approach could involve modifying either the revenue or cost side of the system, such as by lifting the income cap subject to payroll taxes or by gradually increasing the Full Retirement Age. These changes would address the funding gap without requiring extreme tax hikes or benefit cuts.
Summary
In short, even if no changes are made, moderate economic assumptions suggest that nearly 80% of scheduled Social Security benefits would continue to be payable through the end of the century.
Keeping your financial plan aligned with potential legislative updates will help you stay prepared for changes to Social Security. If you’d like more information or have questions, please reach out to us for a complimentary, 15-minute discovery call. We’d be happy to discuss whether we’re a good fit to help you reach your financial goals.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.
Harvest Point Wealth Management and LPL Financial are not endorsed by or affiliated with the United States Social Security Administration or any government agency.
Source: Kitces, Social Security Administration