Social Security took in a whopping $1.351 trillion last year, paying out $1.385 trillion in benefits to retirees, disabled workers, and their families. Subtracting another $7 billion in administrative expenses, the program's trust funds shrank by $41 billion in 2023, and these deficits are expected to continue over the coming years. In the near term, this won't immediately affect Social Security's beneficiaries, but long-term consequences could significantly impact everyone relying on these benefits to make ends meet.
At the beginning of 2024, Social Security still had over $2.78 trillion in its trust fund reserves. This money is crucial for helping the government cover benefits above what it collects annually from Social Security payroll taxes and benefit taxes for retirees. Although $2.78 trillion seems substantial, when the government is paying out trillions in benefits annually, these reserves appear far less adequate. The latest Social Security Trustees Report estimates that the program's trust funds will be fully depleted by 2035.
After depletion, Social Security will only be able to pay out 83% of scheduled benefits. However, benefit cuts aren't a certainty. Social Security has faced solvency issues before, and the government intervened to remedy the problem without affecting anyone's benefits significantly. It is likely that the government will step in again, although the solution and its timing remain uncertain. For retirees, this means that benefits will continue as scheduled for the next several years. However, it is essential to stay informed about future changes to Social Security.
Cuts are a possibility, although they may not be as severe as the 17% cut mentioned in the Trustees Report. Policymakers might decide to sustain Social Security by raising taxes, potentially reducing workers' take-home pay and negatively impacting retirees if benefit taxes increase. In such cases, retirees might lose a larger portion of their checks to taxes rather than experiencing an overt benefit cut. Consequently, preparing for financial independence in retirement is vital. Building personal savings and managing withdrawals carefully can help stretch your nest egg.
Consider taking on a part-time job in retirement for additional income. You may also qualify for other government benefits to help cover essential costs like groceries and medical care. When the government announces its plan for Social Security, it will be the time to reassess your retirement plan. Understanding how much you'll receive from the program will help you determine how much you need to save and devise strategies for retirement income to cover your expenses.
