What Retirees Need To Know About Social Security's Funding Deficit

Forbes

23-06-2025

Congress needs to act soon to prevent future benefit cuts to Social Security
The 2025 Social Security Trustees Report estimates that Social Security retirement benefits might be cut by 23% in the year 2033. That estimate assumes Congress doesn't act to close Social Security's funding deficit, which in today's polarized political climate is appearing more likely.
With 2033 just eight years away, you'll most likely still be alive then if you're reading this post. So, let's look at what pre-retirees and retirees need to know about this troubling situation and what they can do about it.
What Is Social Security's Funded Status?
The 2025 Social Security Trustees Report projects that the Old Age and Survivor Insurance (OASI) Trust Fund can pay 100% of retiree and survivor benefits until the year 2033. At that time, the Social Security Trust Fund is projected to be depleted under the trustees' best estimates. Unless Congress acts to close this funding deficit, revenues from FICA taxes paid by workers will be the only source available to pay retirees' and survivors' benefits. These revenues can only support 77% of the benefits needed for retirees and survivors, according to the best estimates in the report. This would result in projected benefit reductions of 23%.
The Trustees Report also shows the results of the OASI and Disability Income (DI) funds combined, even though the law would need to be changed in order to combine these funds. If this were to happen, the combined funds would be depleted in 2034, and revenues from FICA taxes could pay just 81% of benefits for retirees, survivors, and disabled beneficiaries. This would result in a projected 19% benefit reduction.
Would Social Security Become Bankrupt?
It's important to know that Social Security would not be completely bankrupt if the OASI and DI Trust Funds were depleted, as some people might think. Workers would still be paying their FICA taxes, which would fund the benefits of retirees, survivors, and disabled beneficiaries. As a result, benefits wouldn't disappear entirely even if the trust funds were depleted.
What Can Congress Do To Close The Funding Deficit?
Benefits for retirees, survivors, and disabled beneficiaries are financed almost exclusively by FICA taxes, income tax on Social Security benefits, and interest on trust fund reserves. As a result, there are basically three ways for Congress to close Social Security's funding deficit:
Social Security's deficit is about 3.8% of the total covered pay of workers, or about 1.3% of our country's GDP. As a result, Congress would need to increase taxes and/or reduce benefits with a combined value of these amounts.
You'd think adjusting benefits and taxes by these small percentages would be achievable. At the moment, however, Democrats and Republicans are dug into their positions and haven't been able to find an agreeable-by-both-sides compromise. Predictably, Democrats want to close the funding deficit mostly with tax increases, while Republicans want mostly to cut benefits.
What Do Pre-Retirees And Retirees Need To Do?
If you're pessimistic that Democrats and Republicans will make the necessary compromises in the next eight years to close Social Security's funding deficit, then you'll want to start making plans for a reduction in your Social Security income. Fortunately, you have eight years to explore your options. For example, you could start looking for ways to reduce your living expenses, such as by downsizing or spending less money on cars. You could also consider working part time in the next few years and saving the money for that possible rainy day in 2033.
If you're eligible for Social Security retirement benefits but haven't yet started them, you might be tempted to start them as soon as possible before they're reduced. Not so fast—delaying benefits might still be your best strategy for maximizing your expected lifetime Social Security benefits. You can analyze your best strategy should there be a benefits reduction with Open Social Security, a helpful, free, online Social Security optimizer program.
The Report's Compelling Call To Action
The summary of the Trustees Report contains a compelling call to action. 'The 2025 Trustees Reports indicate a need for substantial changes to address Social Security's and Medicare's financial challenges. The Trustees recommend that lawmakers address the projected trust fund shortfalls in a timely way in order to phase in necessary changes gradually and give workers and beneficiaries time to adjust their expectations and behavior. Implementing changes sooner rather than later would allow more generations to share in the needed revenue increases or reductions in scheduled benefits. With informed discussion, creative thinking, and timely legislative action, Social Security and Medicare can continue to protect future generations.' Well said!
Pressure Your Congress Representatives
We need to put pressure on Congress now to make the necessary compromises to fix Social Security's funding gap. As a result, my wife and I are writing and calling our Senators and House representative. You can also consider supporting organizations that advocate on the behalf of retirees, such as AARP, the Alliance for Retired Americans, and the National Committee to Preserve Social Security and Medicare.
Congress, working Americans, and retirees should take the 2025 Social Security Trustees Report as a flashing red light for a call to action.