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Will Social Security benefits shrink in 10 years?
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Date:2025-04-12 05:11:48
If you're worried that Social Security is soon going to stop paying benefits to retirees, rest assured — that's not a concern. While it's true that the program is facing a financial shortfall in the coming years, that shortfall isn't so extreme to cause benefits to disappear completely.
Rather, what's likely to happen is that once Social Security's trust funds run out, which is expected to occur in about a decade from now, benefits will be cut by roughly 20%. That's not a great situation, but it's far better than not getting any benefits at all.
However, if you're someone who gets most of your retirement income from Social Security, then a 20% cut in benefits could be downright catastrophic to your personal finances. So it's important to start planning for that possibility now.
That said, lawmakers are pretty invested in doing what they can to avoid Social Security cuts. Here are a couple of ways those cuts may be avoided.
1. A delayed full retirement age
Full retirement age (FRA) is when you're eligible to collect your complete monthly Social Security benefit without a reduction, based on your personal earnings history. Right now, FRA is 67 for anyone born in 1960 or after. But lawmakers have proposed raising FRA to 68 or 69 to help Social Security's financial situation.
If this were to happen, the new rule would have to be phased in. It's not like lawmakers would be able to announce one day that FRA is postponed, leaving some people on the verge of age 67 to scramble. But still, it's a possibility and could prevent Social Security from having to reduce benefits.
2. Higher taxes on wages
Social Security's primary revenue source is payroll taxes. In fact, the whole reason the program is facing so many financial challenges is that baby boomers are, or will soon be, exiting the workforce in droves. And if there are fewer workers, Social Security will have less money coming in.
One way to compensate for that is to raise taxes. Right now, the Social Security tax rate is 12.4%. Salaried workers split that tax with their employers, while those who are self-employed must cover it in full. Raising that tax rate could pump more money into the program and prevent cuts from happening.
Another solution is to raise the wage cap for Social Security taxes. Right now, wages beyond $160,200 are not taxed for Social Security purposes. Next year, that limit will rise to $168,600. Imposing Social Security taxes on a much higher income threshold — or eliminating the wage cap completely and making all income subject to Social Security taxes — could help the program tremendously.
It's not a sure thing
Social Security may be forced to cut benefits in 10 years, but that's not a given. If you're still working, it's best to ramp up your savings efforts now to allow for that possibility. And if you're already retired and very reliant on Social Security, you may need to consider picking up some part-time work while you can (if you're still able to) or make other adjustments to conserve cash and stretch your income.
Either way, this isn't the first time Social Security has faced the possibility of benefit cuts. Lawmakers have managed to avoid shrinking benefits in the past, so there's a good chance they'll be able to do it again. Whether the solution they land on sits well with workers and taxpayers, however, is a different story.
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The Motley Fool is a USA TODAY content partner offering financial news, analysis and commentary designed to help people take control of their financial lives. Its content is produced independently of USA TODAY.
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