Is Social Security Going Bankrupt?

Scott Wimmer, CFA, CFP®, EA
Ida May Fuller, first Social Security recipient

Ida May Fuller was a Vermont schoolteacher and legal secretary, but she is better known for being the very first recipient of recurring monthly Social Security payments. Ms. Fuller worked for 3 years under the Social Security program tax and paid all of $24.75 into Social Security before filing for retirement in 1939.  

On January 31, 1940, the Social Security Administration sent Ms. Fuller the first monthly check for a grand total of $22.54.  For the remainder of her life, Ida collected $22,888.92 in Social Security benefits……. not a bad Return on Investment (ROI)!!!

On March 31, the 2023 OASDI Trustees Report was released giving detailed financial projections for the Social Security program over the next 75 years.  

Sound the Alarms!

To most people, insolvency is a red flag for financial distress.  Unfortunately, the financial media is out to get clicks and views to line their pockets, so they know writing titles that combine the words “insolvency” and “broke” with Social Security is sure to garner attention and raise concerns among retirees.  

Social Security Funding

In 2022, net payroll tax contributions accounted for 90.6% of the total trust fund income. As the trust fund reserves continue to deplete over the coming years due to higher costs, Social Security will be unable to pay 100% of current benefits.  

“..combined OASI and DI Trust Fund reserves decline until they become depleted in 2034.  After trust fund reserve depletion, continuing income is sufficient to support expenditures at a level of 80 percent of program cost for the rest of 2034, declining to 74 percent for 2097.”

Page 13 – The 2023Annual Report

If the OASDI (Social Security) trust fund runs out of reserves at some point in the future, this does not mean that retirees will lose 100% of their benefits.  If we do absolutely nothing to address the dwindling trust fund, retirees can still expect to receive 80% of their current projected benefits.  

What About the Budget Deficit?

While it is true that Social Security benefits are considered part of the federal budget, it is important to understand that Social Security has its own trust fund and payroll tax for funding. In 2022, 21 percent of the budget, or $1.2 trillion, will be paid for Social Security, which will provide monthly retirement benefits averaging $1,538 to 49 million retired workers.  Social Security operates independently from the rest of the federal government, with dedicated funding sources and long-term commitments that are not subject to the annual budget process. This makes benefits more secure, since the amount spent each year on Social Security benefits is not limited to what Congress appropriates but is instead based on a benefit formula.

Should I Worry About my Benefits?

Under the worst-case scenario, 2034 arrives and there is no money in the trust fund. Payroll taxes are sufficient to pay about 80% of scheduled benefits. There is an across-the-board cut of 20%. This would put benefits right about where they are today—that is, cutting benefits by 20% would wipe out all the COLA increases for 2023–33. This is not the first time Social Security has been under duress; in 1983, when the system was within months of not being able to pay, Congress quickly passed a series of amendments to stave off a benefit cut and strengthen the system for the future.  Letting Social Security benefits decline by 20% across the board would be political suicide for any politician or political party so it is likely that Congress will act as they have in the past.  Unfortunately, Congress will wait until last minute to address the issues which only compounds the costs.  


To answer the original question, yes and no.  It is true that the Social Security Trust Fund is set to expire sometime in 2033/34.  It is not true that this means that all benefits will cease beyond this point as payroll taxes will provide 80% of the projected benefits.  In a worst-case scenario, it may be worthwhile to stress test your retirement projections by reducing Social Security benefits by 10-20% in the future.


Disclosures: This article is for informational purposes only and should not be considered a recommendation. Information contained in this article is obtained from third party resources that Meredith Wealth Planning deems to be reliable. Consult with a financial advisor before implementing any strategies.

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