The latest update on Social Security’s financial situation is here — and the news isn’t great

Lately, all eyes have been on the 2025 cost of living adjustment (COLA) and the effect it will have on benefits next year. Checks will go up starting in January, though we won’t know by how much until the October 10th COLA announcement.

The increase will provide pensioners with little relief in the short term. But for those who expect to claim benefits for another decade or more, the higher checks could be cause for concern, especially in light of new data on the future of Social Security.

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Social Security is a decade away from insolvency

Social Security has spent more money than it has taken in every year since 2021, and that trend is expected to continue. So far, it has continued to operate because its trust funds have had excess cash to cover the shortfall, but that money won’t last forever.

The Old Age and Survivors Insurance Trust Fund (OASI), which pays for retirement and survivor benefits, is expected to run out in 2033, according to a September Congressional Budget Office (CBO) report (opens PDF). The Disability Insurance Trust Fund will be exhausted in 2064.

And if the government combines the money from the two trust funds, it would be exhausted in 2034. That’s because the Social Security Administration pays out far more in retirement and survivor benefits than it does in disability benefits.

If the government did nothing, recipients would face a 23 percent reduction in their checks starting in 2035. That would gradually increase by another 5 percent through 2098. Benefits are expected to remain flat after that.

This would be devastating for millions of retirees, especially those without adequate personal savings or another steady source of income. To give you some context, a 23% reduction in benefits would drop the average retirement benefit of $1,920 (as of August) to $1,478 per month. That would mean about $5,300 less per year in benefits.

A fix is ​​possible but painful

The good news is that the government will not allow such a reduction in benefits to happen. This is not the first time Social Security has faced a funding crisis. When the program last faced this problem in the 1980s, the government stepped in and made changes that allowed the program to largely maintain its existing benefits.

However, the remedies had their drawbacks. Some of the key changes involved:

• Raising the full retirement age (FRA): This is the age at which you become eligible for the full benefit based on your work history. Claiming early is possible, but it reduces your checks. A higher FRA means that younger claimants face more severe penalties for starting benefits at the same age as their older counterparts.
• Social security payroll tax increase: This is the tax all workers pay on their earnings up to an inflation-adjusted cap ($168,600 in 2024). This meant that workers took home less money each year. Currently, this tax is 12.4%, split equally between employer and employee.
• Introducing taxes on some social security benefits: This is a tax that certain retirees pay if their provisional income — the sum of their adjusted gross income (AGI), tax-free interest on their investments and half of their annual Social Security benefit — exceeds $25,000 for single adults or $32,000 USD for a married person. couple. These taxes leave some retirees with less money to put toward expenses.

These fixes are some of the same options that government officials and experts have thrown around this time as well. So far, there is no clear solution. The CBO report says it would take a 4.3 percent payroll tax increase to fix the deficit or a permanent 24 percent cut in benefits. But given the major financial implications each of these options would have, it is likely to be a combination of strategies.

There could be a smaller increase in the payroll tax, along with increases in taxes on the Social Security benefits that retirees pay. This would at least spread the burden of the program’s increased funding needs rather than targeting a specific group.

For now, all you can do is wait and see how the government handles the funding crisis and find out how to diversify your sources of retirement income. The less dependent you are on Social Security, the easier it will be for you to face whatever comes your way.