Social Security trust funds shrank by $41 billion last year. Here’s what this means for retirees

Social Security took in a whopping $1.351 trillion last year and paid out $1.385 trillion in benefits to retirees, disabled workers and their families. If this math seems a little strange to you, that’s because it is.

Excluding an additional $7 billion in administrative expenses, the program’s trust funds shrank by $41 billion in 2023, and we expect these deficits to continue in the coming years. In the short term, this will have no impact on Social Security recipients, but the long-term consequences could take a huge toll on everyone who relies on their benefits to make ends meet.

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What happens when the escrow funds run out?

As of the beginning of 2024, Social Security still had more than $2.78 trillion in trust fund reserves. This money is critical to helping the government cover benefits beyond annual Social Security payroll taxes and Social Security benefit taxes for retirees. That sounds like a lot of money, but when the government pays out trillions in social benefits every year, the reserves seem far less adequate.

The latest Social Security Trustees Report estimates that the program’s trust funds will be completely depleted in 2035. After that, social security will only be able to pay out 83% of the planned benefits in the future.

However, benefit cuts are not a given. Social Security has faced solvency issues in the past, and the government stepped in to resolve the issue before anyone’s benefits were affected. It’s likely that this will happen again, but at the moment we don’t know what the solution will be or when it will come into effect.

What does this mean for retirees?

Benefits will continue as planned for the next few years, but it is important to keep an eye on future changes to Social Security. Reductions are still possible, although they may not be as severe as the 17% cut mentioned in the trustees’ report.

The government could also decide to keep Social Security afloat by raising taxes. This would force employees to get by with a lower net wage. It could also hurt retirees if Social Security taxes also rise. Then you may lose a larger portion of your checks to taxes rather than an outright cut. In any case, you would have fewer benefits to spend on your own expenses.

That’s why it’s important to be as financially independent as possible in retirement. Build your stash of personal savings and manage your withdrawals carefully so you can stretch your nest egg for as long as possible. You might also consider taking on a part-time job in retirement to receive a steady paycheck to supplement your benefits. You may also be eligible for some other government benefits to cover your basic costs, such as food and medical care.

When the government finally announces its plan for Social Security, it’s time to take a close look at your retirement plan. Once you know how much you’ll get out of the program in the future, you can figure out how much you need to save yourself and develop retirement income strategies to help you cover your expenses.

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