Over the past few weeks, you may have seen some scary headlines suggesting that Social Security is “running out of money” by 2032. Adding to the concern, the projected depletion date has moved up from 2035 just two years ago. It’s an alarming picture—but it’s also incomplete.
Here’s the reality: Social Security is not going away. The program’s primary trust fund is expected to be depleted by 2032. Once that happens, Social Security would continue paying benefits, but only from incoming tax revenue.
Under current projections, that means about 78% of scheduled benefits would still be paid, implying a reduction of roughly 20–25% if no changes are made beforehand.
So, the real issue isn’t that Social Security goes away, but whether benefits are reduced. And that’s where proper planning comes in.
Why This Gap Exists
This isn’t a new development. Social Security has been gradually shifting from a surplus system into a deficit one for years.
At its core, more people are drawing benefits from Social Security while relatively fewer workers are supporting the system. This is seen in longer life expectancies that cause benefits to be paid over longer periods. At the same time, lower birth rates and slower workforce growth are reducing future tax revenue.
What a Reduction Could Mean
A 20–25% reduction is meaningful, especially for households that rely heavily on Social Security. It’s important to keep this in perspective. Even with reduced benefits, Social Security remains a significant and reliable source of income for retirees.
It’s also important to keep in mind that these projections are not set in stone. Policymakers have addressed funding challenges in the past, and it’s likely there will be some form of reform before 2032. Potential solutions include:
- Reducing benefits on higher earners
- Raising the retirement age
- Using a different cost-of-living adjustment each year
- Increasing the cap on earnings that are subject to Social Security taxes (currently $184,500)
- Raising the payroll tax rate for employees/employers
Ultimately, any long-term solution will require congressional action.
What Can You Do?
One way to offset a potential reduction is to delay or suspend your benefits after reaching Full Retirement Age (67 for anyone born in 1960 or later) and before age 70, even if you have already started receiving monthly checks. During the suspension period, Social Security rewards you with Delayed Retirement Credits, which increase your future benefit.
In this scenario, benefits increase by about 8% per year for each year they are suspended up until age 70. Once benefits restart, the higher amount is permanent and can also increase survivor benefits for a spouse.
For example, if your benefit at 67 is $3,000 per month and you suspend it for three years until age 70, your benefit could increase by approximately 24% to $3,720 per month.
Unfortunately, this only works for those who can cover their income needs from other sources while waiting for the larger Social Security benefit. Others may choose to work longer to bridge the gap and build additional retirement savings.
A Planning Opportunity—Not a Crisis
It’s natural for headlines like this to create anxiety. But in many ways, this is exactly the type of uncertainty that good financial planning is designed to address. The most important takeaway is this: your retirement plan should not depend on a single variable being exactly right.
By planning ahead, we can reduce reliance on any one outcome and create a strategy that holds up regardless of changes to Social Security. If you’d like, your financial advisor can review how your current plan accounts for Social Security and walk through different scenarios together.
Presented by Carl Holubowich, CFP®
