Funding Deficit of Social Security: Social Security retirement benefits could be reduced by 23% in 2033, according to the 2025 Social Security Trustees Report. That estimate is predicated on Congress taking no action to reduce Social Security’s funding deficit, which seems increasingly likely given the divisive political environment of today.
If you’re reading this, you’ll probably still be alive in 2033, which is only eight years away. Let’s examine what retirees and pre-retirees should know about this concerning circumstance and what they can do to address it.
What Is the Funded Status of Social Security?
The Old Age and Survivor Insurance (OASI) Trust Fund is expected to be able to pay all retiree and survivor benefits until 2033, according to the 2025 Social Security Trustees Report. According to the trustees’ best projections, the Social Security Trust Fund will have been exhausted by that point. The only way to pay retirees’ and survivors’ benefits will be through worker-paid FICA taxes unless Congress takes action to close this funding gap. The report’s best estimates indicate that these revenues can only cover 77 percent of the benefits required for retirees and survivors. Benefit reductions of 23% are anticipated as a result.
Even though combining the OASI and Disability Income (DI) funds would require a change in the law, the Trustees Report also displays the outcomes of this combination. The combined funds would run out in 2034, and only 81% of benefits for retirees, survivors, and disabled beneficiaries could be covered by FICA tax revenues. This is expected to reduce benefits by 19 percent.
Would the Social Security Administration Go Bankrupt?
Contrary to what some people may believe, Social Security would not go bankrupt if the OASI and DI Trust Funds were exhausted. FICA taxes, which support the benefits of retirees, survivors, and disabled beneficiaries, would still be paid by employees. Therefore, even in the event that the trust funds were exhausted, benefits would not completely cease to exist.
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How Can The Funding Deficit Be Closed By Congress?
Benefits for retirees, survivors, and disabled beneficiaries are financed almost entirely by FICA taxes, income tax on Social Security benefits, and interest on trust fund reserves. Therefore, there are essentially three ways that Congress can reduce the funding deficit for Social Security.
- Cut benefits for current or future retirees, or both.
- Raise the FICA taxes that employees pay, and/or.
- Look for additional funding sources, like levying new taxes like tariffs or using the general revenues of the federal government.
About 3.8 percent of workers’ total covered wages, or 1.3 percent of our nation’s GDP, is lost by Social Security. Because of this, Congress would have to raise taxes and/or cut benefits totaling these sums.
You would think it would be possible to change taxes and benefits by these tiny percentages. However, Republicans and Democrats are currently locked into their positions and have failed to reach a compromise that both parties can agree on. Republicans primarily want to reduce benefits, while Democrats, predictably, want to increase taxes to close the funding deficit.
What Are The Requirements For Retirees And Pre-Retirees?
You should begin preparing for a decrease in your Social Security income if you don’t think Republicans and Democrats will reach the necessary agreements to reduce the funding deficit in the next eight years. Thankfully, you’ve got eight years to consider your options. For instance, you could start searching for methods to lower your living expenses, like cutting back on your car purchases or downsizing. In the upcoming years, you might also think about taking on part-time work and putting the money aside for that potential rainy day in 2033.
You may be tempted to begin receiving Social Security retirement benefits as soon as possible in order to avoid them being reduced if you are eligible but haven’t done so yet. Not so quickly—if you want to maximize your anticipated lifetime Social Security benefits, delaying benefits may still be the best course of action. Open Social Security is a useful, free online Social Security optimizer program that can help you determine your best course of action in the event that benefits are reduced.
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The compelling call to action in the report
There is a strong call to action in the Trustees Report summary. “To address the financial difficulties facing Social Security and Medicare, significant reforms are required, according to the 2025 Trustees Reports. In order to implement the required changes gradually and allow employees and beneficiaries time to modify their expectations and behavior, the Trustees advise lawmakers to promptly address the anticipated trust fund shortfalls.
More generations could benefit from the necessary revenue increases or scheduled benefit reductions if changes were implemented sooner rather than later. Future generations can continue to be protected by Social Security and Medicare with thoughtful debate, innovative solutions, and prompt legislative action, Well said!
Pressure Your Congress Representatives
Right now, we must exert pressure on Congress to reach the required agreements in order to close the funding gap for Social Security. Additionally, you might want to support groups like the National Committee to Preserve Social Security and Medicare, the Alliance for Retired Americans, and AARP that fight for retirees.
It is important that Congress, working Americans, and retirees take action in response to the 2025 Social Security Trustees Report.