So, is Social Security going to run out? The short answer: Probably not.

Then again, you’re likely not here for the short answer. That’s because you might already be relying on Social Security as an inflow in your cash-flow plan. Or you’re at least planning to rely on it as part of your financial plan. And seeing doom-and-gloom news headlines about the “22% cliff” and the cuts that the Social Security trust fund is approaching doesn’t exactly instill trust. That may be especially true if you’ve been paying into the system for years, decades, or even throughout an entire career.

I’m here to dispel some of the myths and misunderstandings surrounding these catchy headlines. I’ll also provide some insights into the system and potential changes to the Social Security system that could lessen the impacts. In the end, I think you’ll find that the “cliff” the Social Security trust fund is facing isn’t quite as scary as you might’ve originally thought. Plus, there’s still time for change.

What Is Social Security?

If you’re looking for a great explainer, check out a blog that Jason wrote last year. It’s called Back to Basics: Social Security, and it highlights what Social Security is, how it works, and where the trust fund was sitting about a year ago. In particular, it points out that, once the trust fund runs out, the system would probably be able to pay out 81% of benefits through the year 2099.

For some perspective, he included a reminder that, ”Social Security is only designed to replace about 40% of income in retirement, possibly less in the future, making it important to save for retirement through other methods.” We’ll get back to that in a bit. But Jason’s piece also lays some great groundwork for some of the other items I’ll be delving into today. For example, when he wrote it last September, the trust fund was expected to run out in 2033. 

When Will Social Security Run Out?

The Social Security trust fund is now expected to run out in the fourth quarter of 2032, according to the 2026 report, released June 9. That’s a year earlier than previously expected. And compared to last year’s expected 19% cut, this year’s Social Security Trustees Report shows a 22% cut if Congress doesn’t make any changes. 

What Are Some Potential Social Security Fixes to Avoid Cuts?

The Social Security Trustees Report lays out a few options. Each one of the three scenarios below, when considered alone, is expected to make the trust fund solvent for 75 years. 

Raise the Payroll Tax Percentage

The Trustees Report suggests that a payroll tax increase from 12.4% to 16.65% could be a fix. This would mean a 4.25% increase overall, breaking down to a 2.125% increase for employees. 

Trim Social Security Benefits for All

This scenario would include a 25.2% decrease in benefits for all current and future Social Security recipients. 

Trim Benefits for Newly Eligible Claimants

The third scenario would only apply to those who have not reached age 62 or older by the end of 2026. However, it would mean a 30.3% cut for those who become eligible in 2027 or later.

Of course, these are just three possible scenarios in isolation, and the Trustees have not recommended any one in particular. Any of the three could also be combined to some degree. For example, payroll taxes could increase by 1% for employees and employers alongside a smaller trim for all or for future claimants or both. Aside from what the Trustees have proposed, other potential options include …

• Raising the Social Security wage base. Those paying into the system stop paying in once their income exceeds $184,500. By raising the wage base beyond that amount or eliminating it entirely, higher earners would continue to contribute on dollars earned above the current base and bolster the trust fund.
• Raising claiming ages for Social Security. As individuals work longer and live longer, raising the ages at which they can claim benefits is another option. In 1983, Social Security reform raised the full retirement age from 65 to 67 for those born in or after 1960. Adjustments to eligibility are another possible fix to shore up shortages.

While this isn’t an exhaustive list of possible solutions, it shows that alternatives are available. 

What Can You Do to Prepare for Social Security Benefit Cuts?

You could spend less and save more for retirement now. But before we drastically change your retirement cash-flow plan, let’s put this into perspective. The earliest cut is projected for 2032. That leaves six years for Congress to do something in the meantime. If they do nothing between now and the fourth quarter of 2032, they could always act after the fact.

Now let’s backtrack a bit more. The fact that Social Security could be cut by 22% definitely sounds like a lot. It’s easy to jump to the conclusion that your retirement income would decrease by almost a fourth, but that’s simply not true. 

Social Security was only designed to cover 40% of retirement income, so even a full 22% Social Security benefit reduction wouldn’t be a 22% cut to total retirement income. It would only be a 22% cut to 40% of total income. Math that out, and you’ll see that it’s only an 8.8% reduction of total income — and only if Congress does nothing. 

Even with this full cut, it would leave most people with 91.2% of their total retirement income. This worst-case scenario for many would simply boil down to the need to adjust spending by less than 10%.

If you’re retired, you might be considering what you might do if you needed to trim your retirement spending. If you’re concerned about a Social Security benefit reduction, a cash-flow planning consultation can help ground your options in reality. It can also allow you to understand what kinds of cash-flow adjustments even a worst-case scenario would entail. 

Still working and want to reduce your spending so you can redirect more to saving for retirement now? Whether you’d like to see if you’ve got room in your cash-flow plan to save in your 401(k), traditional or Roth IRA, health savings account (HSA), taxable brokerage account, or high-yield savings, let’s meet. Saving more for yourself for retirement certainly won’t hurt later, even if you choose to trim some expenses and feel a slight squeeze now.