Social Security’s trust funds shrank by $41 billion last year. Here’s what that means for retirees

Social Security collected $1.351 trillion last year and paid out $1.385 trillion in benefits to retirees, disabled workers and their families. If that math seems a little funny to you, that’s because it is.

Strip out another $7 billion in administrative expenses, and the program’s trust funds are down $41 billion in 2023, and we expect these shortfalls to continue in the coming years. In the short term, this won’t hurt Social Security recipients, but the long-term consequences could take a huge toll on everyone who relies on their benefits to make ends meet.

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What happens when trust funds run out?

Social Security had more than $2.78 trillion left in its trust fund reserves at the start of 2024. That money is essential to help the government cover benefits above what it takes in annually in Social Security payroll taxes and benefits taxes. social security for retirees. That seems like a lot of money, but when the government pays out trillions annually in benefits, the reserves seem far less adequate.

The most recent report from Social Security administrators estimates that the program’s trust funds will be completely depleted in 2035. After that, Social Security will be able to pay only 83 percent of scheduled future benefits.

However, benefit cuts are not a one-off. Social Security has faced solvency problems in the past, and the government stepped in to fix the problem before anyone’s benefits took a hit. This may happen again, but at this point we don’t know what the fix will look like or when it will go into effect.

What does this mean for retirees?

Benefits will continue as scheduled for the next few years, but it’s important to keep an eye on upcoming Social Security changes. Cuts remain a possibility, although they may not be as severe as the 17% cut mentioned in the Trustees’ Report.

The government can also decide to keep Social Security afloat by raising taxes. This would force workers to make do with a lower net wage. It could also hurt retirees if taxes on Social Security benefits also go up. Then you may lose more of your paycheck to taxes rather than an obvious rebate. Either way, you would have less benefit to spend on your own expenses.

That’s why it’s important to be as financially independent as possible in retirement. Build your personal savings pool and manage your withdrawals carefully so you can stretch your nest egg as far as possible. You could also consider a part-time job in retirement to give you a steady paycheck to supplement your benefits. You may also qualify for other government benefits to help with essential costs such as food and medical care.

When the government finally announces its plan for Social Security, that will be the time to take a serious look at your retirement plan. Once you know how much you will receive from the plan in the future, you can figure out how much you need to save on your own and develop retirement income strategies to help cover your expenses.