People line up outside the Social Security Administration office in San Francisco.<\/p>\n
Getty Images<\/p>\n<\/div>\n<\/div>\n<\/div>\n
Social Security<\/a>, the federal social insurance program that millions of Americans rely on for income, faces a shortfall in funding it counts on from its trust funds<\/a>. <\/p>\n But that doesn\u2019t mean the program is going bankrupt or will be entirely unable to pay benefits.<\/p>\n \u201cThere is no bankruptcy or collapse in the cards,\u201d Stephen Nu\u00f1ez, director of stratification economics at the Roosevelt Institute, writes in new research<\/a> titled, \u201c\u2018Will Social Security run out?\u2019 is the wrong question.\u201d<\/p>\n<\/div>\n Surveys show many Americans are worried about Social Security\u2019s future, and experts say this may\u00a0inform their decisions about claiming benefits, one of the most important financial decisions in retirement. Concerns about the program\u2019s future may prompt people to claim benefits earlier \u2014 which reduces their monthly checks and, in turn, may weaken their retirement security<\/a>. <\/p>\n Almost three-quarters of Americans \u2014 74% \u2014 said they worry Social Security will run out in their lifetimes, according to a 2025 Nationwide Financial<\/a> survey of 1,812 adults. <\/p>\n Another 2025 survey from the Cato Institute<\/a> found 30% of respondents don\u2019t believe Social Security will be there for them when they retire, while 70% expect benefits to face future cuts. The libertarian think tank polled 2,000 Americans ages 18 and over.<\/p>\n Americans can assume that Social Security will be there for them in some form, Nu\u00f1ez told CNBC.com.<\/p>\n \u201cThe word \u2018bankruptcy\u2019 used with the program doesn\u2019t really accurately describe what\u2019s happening,\u201d he said.<\/p>\n Other retirement experts have similarly argued that the term \u201cbankrupt\u201d does not accurately describe Social Security\u2019s funding predicament. <\/p>\n \u201cEven if nothing is done, people will continue to receive the bulk of their benefits,\u201d Alicia Munnell, senior advisor at the Center for Retirement Research at Boston College, wrote in May<\/a>. <\/p>\n<\/div>\n In less than 10 years, government projections show, the Social Security trust funds used to help pay benefits will be depleted. The trust funds, which are invested in Treasury securities, are excess money reserves that were not used to pay benefits.<\/p>\n Recent legislation enacted by lawmakers has made the program\u2019s financial issues more imminent. That includes the Social Security Fairness Act, which increased benefits for certain public pensioners, and the \u201cbig beautiful\u201d tax package that reduces tax rates seniors pay.<\/p>\n In particular, the fund dedicated to retirement benefits may run out by late 2032<\/a>, according to the latest estimates from the Social Security Administration\u2019s chief actuary. If Congress does not act, beneficiaries may face an estimated 24% benefit cut. <\/p>\n Notably, benefits would still be payable, as the program would have money coming in from payroll taxes. <\/p>\n If the program reaches that depletion date without congressional action to reform the program, there are several ways benefits may be affected, depending on the interpretation of the law, Nu\u00f1ez said. Among the possibilities include an across-the-board benefit cut, prioritization of payments to the most vulnerable beneficiaries or staggering full benefit payments on a delayed schedule.<\/p>\n<\/div>\n Social Security has been in this situation before. In 1982, the balance of the retirement trust fund fell to zero, prompting the government to temporarily authorize loans<\/a> from the disability and Medicare trust funds. <\/p>\n In 1983, Congress passed legislation to shore up Social Security\u2019s finances that included changes like raising the full retirement age and applying federal income taxes on benefits.<\/p>\n That package of reforms was slated to shore up the program for 75 years.<\/p>\n Yet the projected shortfall is coming much sooner.<\/p>\n There was a lot that lawmakers at the time got right, Nu\u00f1ez said, such as anticipating the large size of the baby boomer population that would eventually claim benefits, as well as demographic changes, including a declining fertility rate and increased longevity.<\/p>\n<\/div>\n Two surprises \u2014 earnings inequality and the Great Recession \u2014 have prompted the projected depletion dates to move up sooner.<\/p>\n Those two factors prompted the program to start drawing down its reserves around 2009, much sooner than had been projected in 2021 and 2022, according to Nu\u00f1ez.<\/p>\n Had the trust funds matured as projected, the depletion date would have been around 2063, rather than roughly 2034, the date Social Security\u2019s trustees identified for the combined funds in their 2025 report<\/a>.<\/p>\n<\/div>\n Income inequality has affected how much the program takes in from the FICA payroll tax, which is applied to earnings up to a certain cap that is adjusted each year. <\/strong>In 2026, that limit is $184,500<\/a>. Earnings up to that amount are subject to a 6.2% payroll tax paid by workers and another 6.2% paid by their employers.<\/p>\n In 1983, 90% of earnings were below the Social Security FICA payroll tax cap. <\/p>\n Yet projections that the percentage would stay about the same with future average annual earnings growth proved to be inaccurate.<\/p>\n Average real earnings grew as expected. Yet those gains were \u201cunexpectedly unequal,\u201d Nu\u00f1ez said.<\/p>\n The top 6% of earners continued to have wages above the payroll tax cap. Yet their real earnings grew by an average of 62% from 1983 through 2000, exceeding expectations. Meanwhile, the remaining 94% of workers only saw a 17% increase in average real earnings. <\/p>\n The FICA payroll tax cap did not increase quickly enough to maintain the 90% tax coverage. As of 2000, it had dropped to about 82.5%, and mostly stabilized there, according to Nu\u00f1ez \u2014 which meant less tax revenue for the program\u2019s reserves. In 2023, 83% of total payroll<\/a> was subject to Social Security taxes, a Bipartisan Policy Center analysis shows. <\/p>\n The unexpected economic shock of the Great Recession also hurt Social Security\u2019s funding, as higher unemployment and slower earnings growth meant less payroll tax revenue coming into the program. Older workers may have opted for retirement, increasing the benefits the program paid out. <\/p>\n<\/div>\n It is now up to lawmakers to decide how Social Security\u2019s shortfalls will be addressed, whether through tax increases, benefit cuts or a combination of both.<\/p>\n \u201cThe longer we wait to do something, the higher the cost is going to be,\u201d Nu\u00f1ez said.<\/p>\n The soonest projected depletion date \u2014 2032 \u2014 means the next presidential election \u201ccould very well determine the future of the program,\u201d Nu\u00f1ez said.<\/p>\n Senate lawmakers who are elected this year will also be in office at that time.<\/p>\n \u201cLegislators are going to be forced to deal with Social Security, even though they have not wanted to,\u201d Nu\u00f1ez said.<\/p>\n<\/div>\n While today\u2019s lawmakers have vowed to protect Social Security, their approach has largely meant doing nothing rather than tackling the tough reforms the program needs, Maya MacGuineas, president of the Committee for a Responsible Federal Budget, wrote<\/a> in November. <\/p>\n That leaves it up to voters to press lawmakers to address the program, she said.<\/p>\n The changes they make will determine how much Americans pay into Social Security and the amount of benefits they receive.<\/p>\nRead more CNBC personal finance coverage<\/h2>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n
Social Security has faced funding woes before<\/h2>\n
Income inequality, Great Recession affect projections<\/h2>\n
Read more CNBC personal finance coverage<\/h2>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n
Congress will be \u2018forced to deal with Social Security\u2019<\/h2>\n
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