The Surprising Truth About the Future of Social Security

Millions of seniors depend on Social Security in retirement, but its future is still in the balance.

The program is a hotly debated topic in Washington right now, and there have long been rumors that Social Security is going bankrupt. That's a major concern for those relying on their benefits to get by, but the situation isn't that clear cut.

In reality, Social Security isn't going anywhere — but there might be some big changes on the horizon.

What will happen to Social Security?

Social Security's bankruptcy rumors stem from the fact that the program has been running at a deficit for years.

Currently, the Social Security Administration (SSA) has been paying out more money in benefits than it's receiving from taxes. To cover that gap and avoid benefit cuts, it's dipped into its trust funds.

However, those funds are quickly being exhausted. According to the SSA Board of Trustees' 2022 report on the health of the program, the trust funds are expected to last until around 2034.

At that point, the SSA will only have the incoming cash to pay out in benefits, and those income sources are only projected to cover around 77% of future payments. In other words, if Congress doesn't find a solution to Social Security's cash shortfall, benefits could be cut by up to 23% by 2034.

That said, Social Security is not going away entirely. The program is funded primarily by payroll taxes, so as long as workers continue paying taxes, there will always be at least some money to pay out in benefits — even if cuts become a reality in the future.

Big changes could be coming

Washington has known about Social Security's cash flow issues for years, and lawmakers have long debated various solutions. While they haven't come to any agreements yet, they will feel increased pressure to find a fix before 2034.

Right now, there are a few proposals on the table, all with varying levels of support. Some of the most popular potential solutions include:

  • Raising taxes for high earners: Right now, only income up to $160,200 per year is subject to Social Security taxes. But a new proposal has suggested making income over $400,000 per year taxable as well, which would dramatically increase Social Security's funding and provide more money to pay out in benefits.
  • Increase the payroll tax: Some lawmakers have also suggested raising the payroll tax itself from 6.2% to 6.5%. This would affect all workers subject to taxes, and it would also increase Social Security's funding.
  • Raise the retirement age: There have also been proposals to reduce the program's expenditures, including raising the full retirement age from 67 to 68 (with some regulators pushing to raise it to 70). This means older adults would need to wait longer to collect their full benefits, decreasing the amount they'll collect over a lifetime.
  • Reduce benefits for high earners: Another suggestion to lower Social Security's expenses is to lower payments for the highest 20% of earners. These retirees would still receive larger-than-average checks, but less than they're used to.

None of these proposals have become law, and Congress is still debating the best course of action.

The most effective of these strategies would be taxing income over $400,000 per year, but even that would only eliminate around 61% of Social Security's cash shortfall, according to a report from the University of Maryland. That means unless Congress comes up with a groundbreaking new idea, they may need to implement multiple changes to fully solve the problem.

While these potential changes may be daunting, the good news is that Social Security isn't going away. By staying aware of new developments regarding the program's future, you can ensure you're prepared for whatever may happen with Social Security.

The One Ticker Retirement Plan

Market Wizard Larry Benedict defied the odds and crushed the market in 2022.

But he didn't do it with a “traditional” method…

For a limited time, he's sharing a free over-the-shoulder “demo” of his strategy in action.

It takes less than 10 seconds…

Watch it here.

Originally published on

The Motley Fool has a disclosure policy.