Is Social Security Going Away? Separating Fact from Fear

Anxiety about the Social Security retirement system has been running high recently. These feelings have arisen from recent federal budget cuts and reports from the media about the projected insolvency of the Social Security retirement program. For example, a recent article in the Wall Street Journal reported that the Social Security Trust Fund is currently projected to run out of money in 2032.

There has been a big recent uptick in early claiming of benefits which has been attributed to anxiety about these looming budget issues. There are also voices in the financial media which amplify the idea that people should claim their benefits before the system runs dry. A lot of these ideas are based on misunderstanding of how the Social Security system works and its history. Let’s clear the air a bit to help you make good decisions about your Social Security benefits based on sound information and analysis – not fear-mongering and alarmism.

Why Social Security matters

Social Security is the backbone of retirement income for most Americans. Nearly 69 million people receive a benefit each month, and total annual payments run around $1.6 trillion, making it one of the largest programs the federal government runs.

For a lot of retirees, it's not a supplement. The Social Security Administration's own estimates show that at full retirement age, benefits replace as much as 79% of pre-retirement earnings for lower earners, dropping to roughly 43% for medium earners and around 28% for the highest earners.

You can claim retirement benefits as early as age 62, but claiming early locks in a permanently smaller monthly check. Wait past your full retirement age, and the monthly amount keeps climbing until age 70. Say your Primary Insurance Amount (PIA), the benefit you'd get at full retirement age, is $2,000 a month:

• Claim at 62, and you get about $1,400 a month.

• Claim at 67 (a common full retirement age), and you get the full $2,000.

• Wait until 70, and it climbs to roughly $2,480.

Benefits also get an annual cost-of-living adjustment, which is one of the few guarantees in retirement income that actually holds up over a few decades. Even so, more people have been claiming at 62 lately, and the trend lines up almost exactly with the recent wave of anxious headlines.

Understanding the Social Security Trust Fund

Payroll taxes fund Social Security. Specifically, it's the FICA tax: 12.4% of covered wages up to a cap, currently $184,500, split evenly between worker and employer.

When that tax revenue outpaces benefit payments, the surplus gets credited to the Trust Fund. When it doesn't, the Trust Fund covers the gap. That's been the situation since 2021, largely because Baby Boomers are retiring faster than new workers are entering the tax base. The Trust Fund held about $2.75 trillion at its peak in 2021; by the end of 2025, reserves had fallen to roughly $2.56 trillion.

At the current pace, the Social Security Administration projects the retirement portion of the Trust Fund will be depleted in the fourth quarter of 2032, plus or minus a few years depending on how the economy performs between now and then.

One common misconception is that benefits will go down to zero at this date. That’s not true. At that time, there should still be enough tax money coming in to fund 78% of Social Security benefits. Therefore, benefits are projected to decrease by 22% in 2032 if Congress does nothing to fix the system. However, we’ll discuss how Congress has a strong incentive to act. They also have a history of acting to save the system – at least at the 11th hour.

How Congress could fix Social Security

Congress has options here, and they mostly sort into two buckets.

Bring in more revenue

Raising the payroll tax rate, lifting the earnings cap, or taxing a wider range of income are all on the table. One proposal floated regularly would remove the cap on the employer side of payroll taxes for high earners specifically. It would help. Most analyses agree it wouldn't close the entire long-term gap on its own, though.

Slow the growth of benefits

The alternative is trimming the other side of the ledger: raising the full retirement age gradually, reducing benefits for higher-income retirees, or changing how COLAs get calculated so they grow a little slower.

Neither path is painless, and Congress has historically waited until the last possible moment to act. In 1983, lawmakers passed bipartisan reforms mere months before the Trust Fund was projected to run out. Whatever you think of that timeline, a program this large, touching this many households, tends to get fixed eventually. Just not early.

Should you claim early because of solvency fears?

This is where a lot of people get the math backwards. Say Congress cut future benefits by 20% across the board. A $2,000 benefit at full retirement age becomes $1,600. The $1,400 benefit at 62 becomes $1,120. The $2,480 benefit at 70 becomes $1,984.

However, what wouldn’t change is the relative merit of claiming at one age versus another. For example, the value of claiming at age 67 would decrease by 20% as would the value of claiming at age 70. However, the value of claiming at age 70 would still be higher after these cuts if it were higher before the cuts.

Various factors should go into your claiming decision including your financial needs, expected lifespan, marital situation, tax situation, etc. A Fruition Mentor session is a useful place to walk through how those pieces fit together for your specific situation. You can also find a free online Social Security Optimizer from ShoreUp Retirement Solutions, a Fruition partner, which incorporates your personalized projected lifespan to help identify an appropriate claiming strategy.

The bottom line

Social Security has a real, well-documented funding problem, and the Trust Fund will eventually run dry if Congress does nothing. But "the Trust Fund runs out" and "Social Security disappears" are two different things entirely. Even in the worst realistic case, payroll taxes keep the program running at about three-quarters strength, and Congress has shown, more than once, that it'll act before letting benefits fall off a cliff.

Claiming Social Security could be one of the biggest financial decisions you'll make in retirement. It’s natural to feel fear and anxiety in the face of fear-mongering and negative headlines. However, a bit of calm reflection and analysis based on sound information can help steer you from emotional decisions to ones that can best ensure your financial security in retirement.