Latest news with #SocialSecurityTrustees
CNET
3 days ago
- Business
- CNET
Social Security's Shrinking Reserves Could Mean Lower Benefit Payments: What To Know
Social Security reserves are drying up faster than expected. Here's what you should know. Getty Image/ Zooey Liao/ CNET Millions of Americans rely on Social Security as supplementary income, and for many, it's their lifeline. According to the latest annual report from the Social Security Trustees, the program is in worse shape than expected just months ago, with trust fund reserves now projected to run out a year earlier -- in 2034. To be clear, monthly Social Security payments will still go out, but recipients could see nearly a 25% cut in benefits. That's troubling, especially for those who rely on it as their main income source. Turning things around would require swift action from lawmakers. The overarching issue for the Social Security program is that it's paying out more money than it's receiving from the current workforce, a situation known as an actuarial deficit. The annual report details some of the reasons that the trustees project the trust funds to run out sooner than expected, including lower birthrates and newly implemented initiatives like the Social Security Fairness Act. The annual report is an important health check on the current state of the Social Security program, but it also lays the groundwork for policymakers to make funding changes -- reducing the potential harm to those who rely on monthly payments, many of whom are already struggling financially. Below, we'll go over some of the details found in the report, including the reasoning for the updated projections and what it means for you if Social Security can't continue to pay full benefits to recipients -- or when the trust funds become "insolvent." For more, here's what you should know about paper Social Security checks going away. How is Social Security funded anyway? Social Security is funded through a dedicated payroll tax, meaning that employers and employees each pay 6.2% of wages up to the taxable maximum for the given year. For 2025, the maximum is $176,100. If you're self-employed, your tax rate is doubled to 12.4%. The dedicated tax dollars go to the Social Security trust funds -- comprising the Old-Age and Survivors Insurance and the Federal Disability trust funds -- which are managed by the US Treasury and used to pay retirement, disability and survivor benefits. Any surplus is invested in special government securities. The main issue is with the OASI trust fund, which is expected to be depleted in 2033 -- at which point it will only be able to pay about 77% of scheduled benefits. The DI trust fund reserves aren't expected to be depleted within the 75-year period that ends in 2099. What's causing the Social Security fund to run out of money? Social Security is running out of funds for a number of reasons. However, a major factor is the growing number of Baby Boomers retiring compared to the size of the current workforce, which can't pay in enough to keep the Social Security fund solvent. In addition to the growing number of retirement applications, the Social Security Fairness Act, which went into effect in January of this year, has further strained the program. The act repeals two provisions that previously prevented certain types of public workers from receiving benefits. With those provisions out of the way, Social Security is responsible for ongoing payments and billions of dollars in back payments for qualifying individuals. Another factor is the growing actuarial deficit, which has widened since the 2024 annual report that had projected insolvency in 2035. The actuarial deficit is the difference between the Social Security's payment obligations versus the flow of money into the Social Security trust fund. Last year, the deficit was 3.50%, where it has since grown to 3.82%. These deficit projections are based on government estimates extending through the end of the century. The latest annual report also took into account lower birthrates for a longer period of time compared to last year's report and how much labor contributes to the GDP. What would it take to make Social Security solvent? Closing the gap and making the Social Security program solvent would require a cut to benefits, a permanent increase to the payroll tax or a combination of the two. The annual trustees report lays out potential paths to make Social Security solvent until 2099. One path would be to introduce an immediate, permanent payroll tax hike of 3.65% to be shared between employers and employees. Another path would be to immediately and permanently cut all scheduled and future Social Security benefits by 22.4%. What happens after the Social Security fund becomes insolvent? Image illustrating how much in benefits Social Security will be able to pay after the fund becomes insolvent. Social Security Administration If nothing is put in place to fill the gap for Social Security funds, 2034 will be a tough year for many. It's important to remember that Social Security payments won't suddenly stop -- but they will be reduced. After the Social Security trust funds are depleted, existing payroll deductions will still be able to pay up to 81% of benefits. For more, be sure to check out the Social Security and SSDI cheat sheet.
Yahoo
3 days ago
- Business
- Yahoo
Social Security Is Facing Major Benefit Cuts: What You Can Do to Plan for Them
Social Security benefits could be slashed once the program's trust funds run dry. It's important to prepare for that possibility now. Workers can focus on building savings while retirees can rejoin the labor force, cut spending, and employ other strategies. The $23,760 Social Security bonus most retirees completely overlook › If you didn't catch the news that came out recently about Social Security, here's an update. And it's unfortunately not a good one. The Social Security Trustees reported that the program's combined trust funds are set to run dry in 2034. That's a year earlier than the trustees projected last year. And it means that Social Security could be one year closer to benefit cuts. The trustees also said that once Social Security's combined trust funds are emptied, the program will only be able to pay 81% of scheduled benefits. That's not a good thing at all for retirees. As it is, Social Security replaces only about 40% of an average earner's pre-retirement wages. A 19% cut on top of that could leave countless seniors with inadequate funds to cover their expenses. For this reason, it's important that everyone do what they can to prepare for Social Security cuts. Here's how to do that, depending on your current situation. If you're still working and, better yet, have a good number of years in the labor force ahead of you, you're perhaps not in such a bad place as far as Social Security goes. It's true that you may not get the complete benefits you're entitled to if cuts happen. But you also have many years to save so you can make up for reduced benefits. Let's say you're 32 years old and plan to retire at 67. Even if you haven't started building a retirement nest egg yet, you have a solid 35 years to accumulate savings. Fund a 401(k) or IRA with $500 a month starting now, and in 35 years, you could be sitting on about $1.034 million if your portfolio gives you a yearly 8% return, which is a few percentage points below the stock market's average. Even if you're older and don't have a 35-year savings window, you can still build up decent savings by prioritizing your nest egg in the coming years. Saving $500 a month over 15 years at an 8% return leaves you with $163,000, which could help make up for benefit cuts. And if you're able to save at a higher rate each month, you could end up with a much larger nest egg by the time retirement kicks off. Don't panic over Social Security cuts if you're already retired. You may have a few options for bettering your financial situation. First, you can see about getting a part-time job to boost your income. And if you don't like the idea of a set schedule, you could turn to the gig economy. You can also look at your spending and aim to shed expenses. If you own your home outright, for example, and it's worth $500,000, downsizing could make it possible to buy a replacement home for half that cost, allowing you to pocket the rest. You can also think about relocating to a part of the country where your Social Security benefits might give you more buying power. And if it's feasible, you could see if it makes sense to live in a multigenerational household with your grown kids and grandkids instead of on your own. There could be cost savings for everyone involved, plus the perk of being there for your family's milestones. Social Security cuts aren't set in stone. But at this point, everyone needs to plan for them. The sooner you do, the less of a blow they might deal to your retirement finances. If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known could help ensure a boost in your retirement income. One easy trick could pay you as much as $23,760 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Join Stock Advisor to learn more about these Motley Fool has a disclosure policy. Social Security Is Facing Major Benefit Cuts: What You Can Do to Plan for Them was originally published by The Motley Fool Sign in to access your portfolio
Yahoo
3 days ago
- Business
- Yahoo
Social Security Is Facing Major Benefit Cuts: What You Can Do to Plan for Them
Social Security benefits could be slashed once the program's trust funds run dry. It's important to prepare for that possibility now. Workers can focus on building savings while retirees can rejoin the labor force, cut spending, and employ other strategies. The $23,760 Social Security bonus most retirees completely overlook › If you didn't catch the news that came out recently about Social Security, here's an update. And it's unfortunately not a good one. The Social Security Trustees reported that the program's combined trust funds are set to run dry in 2034. That's a year earlier than the trustees projected last year. And it means that Social Security could be one year closer to benefit cuts. The trustees also said that once Social Security's combined trust funds are emptied, the program will only be able to pay 81% of scheduled benefits. That's not a good thing at all for retirees. As it is, Social Security replaces only about 40% of an average earner's pre-retirement wages. A 19% cut on top of that could leave countless seniors with inadequate funds to cover their expenses. For this reason, it's important that everyone do what they can to prepare for Social Security cuts. Here's how to do that, depending on your current situation. If you're still working and, better yet, have a good number of years in the labor force ahead of you, you're perhaps not in such a bad place as far as Social Security goes. It's true that you may not get the complete benefits you're entitled to if cuts happen. But you also have many years to save so you can make up for reduced benefits. Let's say you're 32 years old and plan to retire at 67. Even if you haven't started building a retirement nest egg yet, you have a solid 35 years to accumulate savings. Fund a 401(k) or IRA with $500 a month starting now, and in 35 years, you could be sitting on about $1.034 million if your portfolio gives you a yearly 8% return, which is a few percentage points below the stock market's average. Even if you're older and don't have a 35-year savings window, you can still build up decent savings by prioritizing your nest egg in the coming years. Saving $500 a month over 15 years at an 8% return leaves you with $163,000, which could help make up for benefit cuts. And if you're able to save at a higher rate each month, you could end up with a much larger nest egg by the time retirement kicks off. Don't panic over Social Security cuts if you're already retired. You may have a few options for bettering your financial situation. First, you can see about getting a part-time job to boost your income. And if you don't like the idea of a set schedule, you could turn to the gig economy. You can also look at your spending and aim to shed expenses. If you own your home outright, for example, and it's worth $500,000, downsizing could make it possible to buy a replacement home for half that cost, allowing you to pocket the rest. You can also think about relocating to a part of the country where your Social Security benefits might give you more buying power. And if it's feasible, you could see if it makes sense to live in a multigenerational household with your grown kids and grandkids instead of on your own. There could be cost savings for everyone involved, plus the perk of being there for your family's milestones. Social Security cuts aren't set in stone. But at this point, everyone needs to plan for them. The sooner you do, the less of a blow they might deal to your retirement finances. If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known could help ensure a boost in your retirement income. One easy trick could pay you as much as $23,760 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Join Stock Advisor to learn more about these Motley Fool has a disclosure policy. Social Security Is Facing Major Benefit Cuts: What You Can Do to Plan for Them was originally published by The Motley Fool
CNET
4 days ago
- Business
- CNET
Social Security's Crisis Point Is Coming Up Fast. Here's the Latest
Social Security reserves are drying up faster than expected. Here's what you should know. Getty Image/ Zooey Liao/ CNET Millions of Americans rely on Social Security as supplementary income, and for many, it's their lifeline. According to the latest annual report from the Social Security Trustees, the program is in worse shape than expected just months ago, with trust fund reserves now projected to run out a year earlier -- in 2034. To be clear, monthly Social Security payments will still go out, but recipients could see nearly a 25% cut in benefits. That's troubling, especially for those who rely on it as their main income source. Turning things around would require swift action from lawmakers. The overarching issue for the Social Security program is that it's paying out more money than it's receiving from the current workforce, a situation known as an actuarial deficit. The annual report details some of the reasons that the trustees project the trust funds to run out sooner than expected, including lower birthrates and newly implemented initiatives like the Social Security Fairness Act. The annual report is an important health check on the current state of the Social Security program, but it also lays the groundwork for policymakers to make funding changes -- reducing the potential harm to those who rely on monthly payments, many of whom are already struggling financially. Below, we'll go over some of the details found in the report, including the reasoning for the updated projections and what it means for you if Social Security can't continue to pay full benefits to recipients -- or when the trust funds become "insolvent." For more, here's what you should know about paper Social Security checks going away. How is Social Security funded anyway? Social Security is funded through a dedicated payroll tax, meaning that employers and employees each pay 6.2% of wages up to the taxable maximum for the given year. For 2025, the maximum is $176,100. If you're self-employed, your tax rate is doubled to 12.4%. The dedicated tax dollars go to the Social Security trust funds -- comprising the Old-Age and Survivors Insurance and the Federal Disability trust funds -- which are managed by the US Treasury and used to pay retirement, disability and survivor benefits. Any surplus is invested in special government securities. The main issue is with the OASI trust fund, which is expected to be depleted in 2033 -- at which point it will only be able to pay about 77% of scheduled benefits. The DI trust fund reserves aren't expected to be depleted within the 75-year period that ends in 2099. What's causing the Social Security fund to run out of money? Social Security is running out of funds for a number of reasons. However, a major factor is the growing number of Baby Boomers retiring compared to the size of the current workforce, which can't pay in enough to keep the Social Security fund solvent. In addition to the growing number of retirement applications, the Social Security Fairness Act, which went into effect in January of this year, has further strained the program. The act repeals two provisions that previously prevented certain types of public workers from receiving benefits. With those provisions out of the way, Social Security is responsible for ongoing payments and billions of dollars in back payments for qualifying individuals. Another factor is the growing actuarial deficit, which has widened since the 2024 annual report that had projected insolvency in 2035. The actuarial deficit is the difference between the Social Security's payment obligations versus the flow of money into the Social Security trust fund. Last year, the deficit was 3.50%, where it has since grown to 3.82%. These deficit projections are based on government estimates extending through the end of the century. The latest annual report also took into account lower birthrates for a longer period of time compared to last year's report and how much labor contributes to the GDP. What would it take to make Social Security solvent? Closing the gap and making the Social Security program solvent would require a cut to benefits, a permanent increase to the payroll tax or a combination of the two. The annual trustees report lays out potential paths to make Social Security solvent until 2099. One path would be to introduce an immediate, permanent payroll tax hike of 3.65% to be shared between employers and employees. Another path would be to immediately and permanently cut all scheduled and future Social Security benefits by 22.4%. What happens after the Social Security fund becomes insolvent? If nothing is put in place to fill the gap for Social Security funds, 2034 will be a tough year for many. It's important to remember that Social Security payments won't suddenly stop -- but they will be reduced. After the Social Security trust funds are depleted, existing payroll deductions will still be able to pay up to 81% of benefits. For more, be sure to check out the Social Security and SSDI cheat sheet.
Yahoo
20-06-2025
- Business
- Yahoo
How Likely Are Social Security Cuts? Here's the Latest Update.
The Social Security Trustees just moved up the timeline for the program's trust fund depletion date. Benefit cuts could now be on the table within a decade. Lawmakers have managed to prevent Social Security cuts in the past, but it's unclear to what they'll be able to pull off this time around. The $23,760 Social Security bonus most retirees completely overlook › Because so many older Americans rely heavily on Social Security to make ends meet, the idea of the program going broke is incredibly scary. Thankfully, though, that scenario is not on the table. Social Security can't run out of money, simply because it gets most of its revenue from payroll taxes. So as long as there's an active labor force, the program can continue to exist. That said, Social Security is facing a funding shortfall that could result in benefit cuts. And the timing of that shortfall just got a little worse. Even though Social Security is continuously funded by payroll taxes, in the coming years, as baby boomers retire in droves, that revenue stream is expected to shrink. And it won't provide Social Security with enough income to keep up with its payment obligations. Social Security can use its trust funds to keep paying benefits while the money is still there. But once those trust funds are emptied, benefit cuts will be on the table. Meanwhile, the Social Security Trustees just released their annual report, and it found that the program's trust funds may be depleted sooner than expected. That's not good news. The Old-Age and Survivors Insurance Trust Fund could be empty by 2033, at which point only 77% of Social Security benefits would be payable. The Disability Insurance Trust Fund could be empty by 2034. From there, 81% of the combined benefits would be payable by Social Security. But that's a pretty serious pay cut for seniors. As it is, many seniors struggle to cover their expenses on Social Security. If benefits are slashed, retirees could be in for a world of financial pain. This isn't the first time in Social Security's history that the program has faced the possibility of benefit cuts. And in the past, lawmakers have managed to come up with solutions for preventing them. But it's hard to say whether Social Security cuts will be preventable this time around. While there are potential solutions, each one introduces a different sort of problem. Some lawmakers have suggested raising the Social Security tax rate. Currently, that tax rate is 12.4% on wages up to a certain cap, split evenly between employers and employees (though self-employed people pay the entire 12.4%). Lawmakers could increase that tax rate, but that would clearly burden working Americans. It's also possible to raise or eliminate the Social Security wage cap so that higher earners pay into the program on more of their income. The problem, though, is that Social Security is designed to reward people who put more money into the program with larger benefits. If the wage cap is lifted and the program's maximum monthly benefit stays the same so there's a net financial gain, it changes the nature of Social Security. There's also the possibility of pushing full retirement age back a year or two. Right now, it's 67 for anyone born in 1960 or later. That change, however, could force many working Americans into a later retirement than what they want or can handle physically. The fact that Social Security is facing cuts in less than a decade demands lawmakers' attention. And at this point, it's a situation that needs to be prioritized. It's very possible to prevent Social Security from cutting benefits -- but only if lawmakers act quickly. Given what's on the line, we can only hope that they'll manage to beat the ticking clock and spare Social Security recipients a world of financial pain. If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known could help ensure a boost in your retirement income. One easy trick could pay you as much as $23,760 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Join Stock Advisor to learn more about these Motley Fool has a disclosure policy. How Likely Are Social Security Cuts? Here's the Latest Update. was originally published by The Motley Fool Sign in to access your portfolio
