The Future of Social Security

Social Security benefits are one of the most important pieces of the puzzle for financial planning. Not surprisingly, we get asked often about the future of Social Security. Specifically, clients worry about a loss of benefits, or a significant reduction. So, we wanted to offer some insight on the future of the program.

Current payroll taxes cover about 92% of the benefits paid to Social Security recipients. The remainder is funded mostly by drawdowns of the Old-Age and Survivors Income (OASI) Trust Fund, also known as the Social Security Trust Fund. The OASI Trust Fund currently has about $2.5 trillion in assets. But, under current projections, that fund will be exhausted by 2034. At that time, current taxes are projected to cover approximately 81% of scheduled benefits under current law.

So, what happens when the trust fund runs out? If Congress does nothing, all benefits will be reduced by about 20%. What Congress decides to do depends entirely on the political landscape of 2034, which is impossible to predict. Demographics will play an outsized role, to be sure. There will be fewer Baby Boomers by then, and more young people who will want to ensure their Social Security taxes don't disappear into a black hole, never to be seen again.

The result will most likely be some combination of reduced benefits and a higher retirement age. But, there are two other possibilities. The first is a major tax hike to cover all benefits and replenish the Trust Fund. This route would ensure that current scheduled benefits are maintained. The second, less likely, possibility is some sort of needs-based overhaul to make Social Security more like FDR's original vision (see below). This could include a wealth-based phase-out whereby benefits would be reduced or eliminated for Americans with generous pensions or large Individual Retirement Accounts (IRAs).

No matter what happens, retirees can expect their benefits to remain largely intact. If you'd like to see how a future reduction in benefits might impact your retirement, let us craft a personalized financial plan using our powerful software by Right Capital, which includes a Social Security Optimizer tool to help you decide when to start receiving benefits. We can take the guesswork out of Social Security and help get you on a path to financial stability so you won't need to worry about possible reductions in benefits.

A little bit of Social Security History

Social Security was part of FDR's New Deal during the Great Depression. FDR originally wanted Social Security to be needs-based, but he needed the support of the so-called "Hayseed Coalition" of Democratic southern states, who wanted it to be universal. At the time it was enacted, those workers who reached age 65 could expect to live another 12 years on average. Today, that number is 18 years for men and 21 years for women. That increase in longevity, along with lower birth rates, has distorted the worker-to-beneficiary balance, causing the current funding pressure.

Also in this 4Q25 newsletter: All Eyes on the Fed

The Federal Reserve’s recent quarter-point rate cut grabbed headlines, but the bigger story is what happens next. Strong GDP growth and falling jobless claims may limit expectations for additional cuts, despite earlier Fed guidance. At the same time, political pressure from the Trump administration is raising questions about the Fed’s independence and the risks of short-term political influence over monetary policy. We explore what this means for markets, why uncertainty remains the biggest concern, and how we’re positioning portfolios in response.