For nine decades, Social Security benefits have been an important part of the mix of retirement income for American retirees. So you might think that by now they would be well understood. Unfortunately, dangerous myths and misunderstandings continue to circulate.
Let’s address the most pertinent one, a myth that is based partly on reality:
Key Myth: Social Security is running out of money and won’t be there for me. Therefore, I should claim benefits ASAP.
You might have heard that the reserves of the “Social Security Trust Fund” – technically The Old-Age and Survivors Insurance (OASI) Trust Fund – are projected to be depleted by 2033. Unless Congress takes corrective action, after that date, Social Security benefits recipients will receive only 77% of their scheduled benefits.
While that is not good news at all, Congress COULD act to remedy it. Unfortunately, although that annual projection has been looming for decades, updated annually by the Social Security and Medicare Boards of Trustees, Congress has lacked the political will to act on it.
What could be done?
Here are a few possible remedies:
- Increase the Social Security payroll tax cap so that higher earners pay more. The cap was $176,100 in 2025 and it is set at 184,500 for 2026. While the cap has been automatically adjusted each year since 1975 to reflect the increase in average wages, the percentage of earnings covered by the cap has fallen from 90% in 1982 to about 82% today. Resetting it to 90% would help Social Security become more solvent.
- Raise the full retirement age: The age at which full benefits were paid was originally set at 65 in the 1930s. Amendments in 1983 increased the full retirement age gradually to 67, which is where it stands now for people born in 1960 or later. The move to delay the full benefits age wouldn’t be popular but extending it by a year or two would help reduce the projected shortfall.
- Increase the Social Security payroll tax rate, which is currently 12.4%, shared equally between employer and employee. Although no one wants to pay higher taxes, this would also help shore up future benefits.
Will something be done to “fix Social Security”? I don’t have a crystal ball, but perhaps political pressure would lead to action as 2033 approaches. After all, an estimated 70 million Americans are receiving Social Security benefits and many of them vote.
What if nothing is done?
A prudent plan for individuals is to anticipate some kind of shortfall. Few people rely solely on Social Security benefits. If you have a retirement savings account and are still earning an income and able to contribute, do so. And try to save more.
If you’re retired and rely on your Social Security income, could you seek part-time employment to fill the gap?
If you’re already retired or nearing retirement, try to incorporate a bit of a buffer in your financial planning. If you can’t bolster your income to make up for a possible 23% reduction in Social Security benefits, look for ways to reduce your expenses.
What not to do
Don’t panic and claim Social Security benefits early – as early as age 62 – based on the fear that the benefits won’t be there for you.
In fact, claiming benefits at age 62 will guarantee that you’ll experience a permanent 30% loss of benefits. For every month that you claim benefits earlier than age 67, you’ll reduce the monthly benefits you’ll receive for the rest of your life.
Conversely, for every month between ages 67 and 70 that you delay taking your benefits, you’ll receive incrementally more for the rest of your life. If you think there’s a good chance that you’ll live beyond age 80, the optimal move is usually to wait until age 70. That move alone could make up for the projected loss of 23% worth of benefits. It’ll just take a little time to fully make up for it.
Action steps to consider
- Stay informed: Social Security is not going to disappear anytime soon, but this projected shortfall issue won’t go away on its own. Learn the facts and integrate them into your financial planning.
- Talk to your Congressional representatives: Apply pressure. It doesn’t appear that our politicians are eager to address this issue of growing importance. That’s why they need to hear from their constituents.
- Build in a just-in-case cushion: While we might hope that Congress acts to resolve this, hope is not a strategy. Plan for a scenario in which your Social Security benefits are reduced by roughly 25% in another seven years, just in case.
- Speak with a financial professional: It’s easy to let our emotions get in the way of logical, thoughtful action when it comes to money. Work with a pro, who can provide insight and an objective viewpoint.