This month, the government marked the 90th anniversary of the Social Security Act becoming law. However, by the time the program reaches its 100th anniversary, it could look very different if necessary changes are not made soon.
The Social Security Board of Trustees’ annual report provides detailed financial projections for both the Disability Insurance (DI) Trust and the Old-Age and Survivors Insurance (OASI) Trust, the latter of which funds retirement benefits for over 60 million Americans.
Unfortunately, recent projections indicate that without intervention from Congress, Americans could face significant cuts to their benefits in the near future.
Social Security Trust Funds Depletion: A Looming Crisis
The most recent Trustee report, published in June, reveals that the OASI Trust Fund will be fully depleted by early 2033. At that time, incoming revenue will only be sufficient to pay out 77% of scheduled benefits, signaling the likelihood of benefit cuts unless legislative action is taken.
In an August update, Chief Actuary Karen Glenn shared new projections based on recent tax changes, further accelerating the depletion timeline.
Why Is Social Security Facing Cuts?
To understand why Social Security is heading toward cuts, it’s important to look at its revenue sources and the shifting demographics. Social Security was originally designed to collect more revenue than it paid out.
In the past, the growing working-age population and economic expansion contributed to a surplus. However, as baby boomers retire and people live longer, fewer workers are available to pay into the system. The result: a growing deficit in the OASI Trust Fund.
Social Security’s revenue comes from three primary sources: payroll taxes, interest income from invested funds, and taxes on Social Security benefits. However, recent legislation has negatively impacted one of these sources, exacerbating the financial strain.
The Impact of Recent Tax Changes on Social Security
Senator Ron Wyden (D-Ore.) recently asked Chief Actuary Karen Glenn to assess the impact of the newly passed “One Big Beautiful Bill Act” on Social Security. While the bill does not directly cut taxes on Social Security income, it extends the 2017 tax cuts and provides an additional tax deduction for seniors over 65.
This change will reduce the amount of Social Security benefits subject to taxation, leading to a decrease in revenue for the program.
Glenn’s analysis found that this tax law will increase Social Security’s costs by $168.6 billion over the next decade, accelerating the depletion of the OASI Trust Fund to the fourth quarter of 2032, instead of the first quarter of 2033.
While the exact impact on benefit cuts remains unclear, retirees can expect reductions similar to the 23% cut outlined in the Trustees’ report.
Will Congress Act Before Benefit Cuts Take Effect?
Once the OASI Trust Fund is depleted, Social Security will only be able to pay out a portion of its scheduled benefits, unless Congress intervenes.
While some legislative action could help stabilize the program, there is concern that Congress is prioritizing short-term tax benefits for seniors over long-term solutions for Social Security’s financial health.
With Social Security being a critical part of American retirement for millions, it is unlikely that Congress will allow the program to collapse. However, with decisions that favor short-term benefits, the long-term viability of the program is at risk, which could result in major changes by the time Social Security reaches its 100th anniversary.
The $23,760 Social Security Bonus Most Retirees Overlook
For many retirees who may be concerned about their financial future, there are lesser-known strategies within the Social Security program that could help increase retirement income.
By taking advantage of these “Social Security secrets,” retirees could boost their benefits by as much as $23,760 over the course of their retirement, ensuring greater financial stability in the years to come.
