Editor’s note: Michelle Rand is a longtime columnist with Rethinking65. Read more of her articles here.
Michelle Rand
Every spring of every year since 1941, the Board of Trustees of the Social Security Administration issues its annual report, describing the financial status of the trust fund. Its most recent report, issued June 20, estimates that the Old Age Survivors fund will be depleted by 2033.
In that year, the shortfall in worker payments compared with retiree benefits is expected to be about 20%. That means that if nothing is done to change the program, payments to recipients will decline by 20%. Actuarial estimates as well as program design drives these numbers. In most of the trustees’ recent reports, the shortfall has worsened every year, while the time to reach the shortfall has decreased.
A Bit of History
In 1982, for the first time in the history of the Social Security program, the report revealed a projected deficit. Shortly thereafter, Congress passed laws to secure the stability of the fund, including taxing benefits, increasing Social Security tax rates on high-income earners, and gradually lengthening the retirement age. These changes worked for decades: The Social Security fund recovered its viability and remained healthy until 2018.
That year, the Board of Trustees reported an upcoming deficit once again. Since then, these deficits have worsened in the face of political neglect. In fact, regulations passed at the end of the Biden administration incorporated a group of government employees into the Social Security program, further increasing the financial strain and accelerating the risk of benefit cuts for all participants.
Many people paying into the Social Security system or already collecting benefits do not understand the basics of Social Security. The system is really two programs: Old Age and Survivors Insurance (OASI) and Disability Insurance (DI). The OASI program pays what we refer to as Social Security benefits. The “trust fund” maintained a healthy balance until the last seven years, but it is now in depletion.
The fund is receiving less money from current workers and interest payments on its investments than it is paying for plan administration costs and for benefits o current retirees. Long-term deficits deplete the fund, which is what we are facing. When the fund is depleted completely, the only money available for retirees will be what current workers pay into the plan — which is not enough to cover current benefits.
Common myths about SS include:
“I have a Social Security account in my name, with funds I’ve set aside.” Not true: What you pay or paid into Social Security is sent to retirees. Current workers are paying your benefits if you are retired.
“Congress takes money from the Social Security trust fund.“ Not true: At no time has Congress ever “robbed” the trust fund. In fact, the fund is invested in special-issue government bonds that cannot be used for any other purpose.
“Social Security is going broke, and my benefits will disappear.” Not true: The fund is diminishing, and benefits may be cut, but as long as we have workers in the United States, retirees will receive benefits.
Action Points
So where are we now, and how should this situation impact planning for clients? These trustees’ reports are not new news of course, but the situation has obviously become more dire. Consequently, in our practice, we have begun to run dual scenarios; we use Social Security estimates supplied by clients (which do not reflect any diminishment) and we also apply a haircut to those payments starting just after the year 2032.
We vary the haircut to help generate answers to several questions:
Does the prospect of benefit cuts change our recommendation around when a client should claim Social Security?
How vulnerable is the client to a bad market outcome if Social Security cuts become a reality?
How will diminished payments affect survivor’s benefits?
We normally emphasize cash flow when we invest on behalf of retired clients, but should we amplify that strategy for certain profiles?
While a variety of Social Security program tune-ups could be employed to ameliorate the outcome bearing down upon us — from higher taxes and means testing to later retirement ages — none seem to be in the offing. It’s time to prepare for the worst in our planning processes, to defend current and future retirees from a partial evaporation of their cash flow.
To see the 2025 Board of Directors report, click here. Here is a summary from the Social Security Administration.
