With over 4 million Americans retiring this year, concerns about Social Security’s future are growing. Experts warn that without changes, the program’s trust fund could run out of money by 2035. If this happens, benefits could be reduced by 17% or more. Many retirees, especially those who depend mostly on Social Security, could struggle financially.
While a 2.5% cost-of-living increase in 2025 will provide some relief, it is not enough to solve the long-term funding problem. Rising costs for housing, healthcare, and daily expenses continue to put pressure on seniors who rely on their monthly checks.
Key Takeaways
Social Security is facing a potential crisis by 2035 due to an aging population and fewer workers paying into the system, which could lead to reduced benefits.
- If no changes are made, Social Security’s trust fund might be depleted by 2035, resulting in benefits being cut by up to 17%.
- Lawmakers are looking at options like raising the retirement age, increasing payroll taxes, or modifying benefits for higher-income retirees as possible fixes.
- Retirees are encouraged to boost their savings, delay claiming benefits, and diversify their sources of income to prepare for potential cuts.
Why Social Security is running out of money
The biggest issue facing Social Security is the changing population. More people are retiring, and they are living longer, while fewer younger workers are paying into the system. Right now, Social Security is collecting less money than it pays out. In 2024, the program started spending more than it brings in, and this trend will continue unless major changes are made.
For decades, Social Security has been funded by payroll taxes. Workers pay a portion of their wages into the system, and retirees receive benefits from those funds. But with fewer workers contributing and more retirees collecting benefits, the program’s finances are becoming unsustainable.
If no action is taken, Social Security may only be able to pay about 77% of promised benefits starting in 2035. That means retirees could see a significant reduction in their monthly payments.
What lawmakers are considering
To fix this crisis, lawmakers are discussing several potential solutions. One idea is raising the retirement age. Right now, full retirement benefits start at 67, but some proposals suggest increasing it to 70. This would encourage people to work longer and delay when they start collecting benefits.
Another proposal is to increase payroll taxes. Currently, workers pay Social Security taxes on their income up to $176,100 per year. Raising or removing this limit would require higher earners to contribute more, bringing in extra funds for the program.
Some lawmakers are also considering reducing benefits for wealthier retirees. Those with high incomes might receive smaller Social Security payments so that more money can go toward lower-income retirees who rely on the program the most.
While there is no agreement yet, experts say that action must be taken soon to avoid major cuts in the future.
How retirees can prepare for potential cuts
Because the future of Social Security is uncertain, financial experts recommend that retirees take steps now to protect their financial security. One key strategy is to save more money while still working. Instead of relying only on Social Security, workers should aim to save at least 15-20% of their income for retirement.
Another approach is to delay claiming Social Security benefits. While retirees can start collecting at 62, waiting until 70 increases monthly payments. For those who can afford to wait, this strategy can provide significantly larger benefits over time.
Diversifying income sources is also important. Retirees should consider part-time work, investments, or other income streams to supplement their Social Security checks. Having multiple sources of income can help reduce the impact of potential benefit cuts.
How it can affect different groups of retirees
If Social Security benefits are cut, different retirees will feel the impact in different ways. Low-income retirees, who depend on Social Security, may struggle to pay for basic needs like food, rent, and healthcare. Middle-class retirees with small savings might also have a hard time keeping up with rising costs.
Wealthier retirees may not feel the cuts as much, but they could lose some benefits if new rules limit payments for high earners. People with disabilities and surviving spouses could also be affected. To prepare, retirees should save more, find other income sources, and stay updated on policy changes.
The impact of tax changes on Social Security
Recent policy changes have sparked debate about how they will affect Social Security’s future. Some lawmakers have proposed eliminating taxes on Social Security benefits. While this would provide immediate relief to retirees, it could also reduce the amount of money available to fund the program.
If Social Security taxes are removed or lowered, the government would need to find other ways to make up for the lost revenue. This could mean raising payroll taxes on workers, cutting benefits, or adjusting how benefits are calculated.
Economists warn that while tax cuts sound appealing, they could speed up the program’s financial decline unless they are paired with other reforms.
The need for action and what the future holds
With the Social Security Trust Fund expected to run out by 2035, action is needed soon. Experts say a mix of solutions will likely be required to fix the program, including tax increases, benefit adjustments, and changes to the retirement age.
For individuals, staying informed and planning ahead is crucial. Consulting a financial advisor can help retirees develop a plan to secure their income and make the most of their savings. Taking steps now—such as increasing personal savings, delaying benefit claims, and exploring additional income sources—can help cushion the impact of any future cuts.
While Social Security faces challenges, there is still time for both individuals and policymakers to take action. By making smart financial decisions now and advocating for reforms, retirees can work toward a stable and secure future.
