Is Social Security Running Out of Money? Here’s the Truth.

For decades, Social Security has been one of the cornerstones of retirement income in America. If you’re like most people, you’ve been paying into the system for your entire working life and are expecting it to provide a meaningful portion of your income once you stop working.  

Recently, there’s been rumors circulating that Social Security will run out of money in 2033, but is this really true? Let’s take a closer look at what’s happening, what it could mean for you, and, most importantly, what steps you can take to preserve your financial future. 

The Current Challenge Social Security is Facing 

At its core, Social Security is funded by payroll taxes. Every paycheck, you and your employer each contribute 6.2% toward the system, and those dollars go to pay benefits for current retirees. For years, when the system collected more than it paid out, the extra funds were invested in U.S. Treasury bonds through what’s known as the Social Security Trust Fund. 

That worked well for decades, but things have changed. Since 2021, Social Security has been running a cash flow deficit, meaning it’s paying out more than it’s bringing in. To make up the difference, the system has been drawing from the trust fund. The problem? According to the most recent trustees report, that trust fund is on track to run out by 2033. 

What does that mean for retirees? It doesn’t mean Social Security disappears, but it does mean that without reform, the program will only be able to pay about 77% of scheduled benefits. Put into real numbers: if you were expecting $3,000 per month, you might only see around $2,300. Over the course of a year, that’s more than an $8,000 shortfall. For many households, that could make the difference between comfort and financial stress in retirement. 

How Did We Get Here? 

When Social Security was created in the 1930s, the average life expectancy was around 61 years old. Today, it’s closer to 79, with many people living well into their 80s and 90s. That means the system is paying out benefits for far longer than it was ever designed to. 

At the same time, the number of workers supporting each retiree has steadily declined. In 1960, there were about 5 workers for every retiree. Today, it’s closer to 2.7, and that ratio is expected to keep shrinking. With fewer people paying in and more people drawing out, the math simply doesn’t balance. 

Inflation adds another layer of strain. Social Security benefits are adjusted for cost-of-living each year, which further increases the program’s expenses. When you add it all up – longer life spans, fewer contributors, more beneficiaries, and cost-of-living increases – it becomes clear why the system is under pressure. 

Possible Fixes on the Table 

The good news is that Social Security isn’t beyond saving. Lawmakers have several options to restore its solvency, though none are painless. Here are a few of the most commonly discussed options: 

• Raising the Full Retirement Age: Currently, it’s 67 for those born in 1960 or later. Moving it to 68 or 69 would reduce lifetime payouts, but it could be especially tough on those in physically demanding jobs. 

• Increasing Payroll Taxes: Even a small increase could generate significant revenue, but it’s not a popular idea in an inflationary environment. 

• Adjusting the Wage Cap: Today, only the first $176,100 of wages is subject to Social Security tax. Reapplying the tax above a second threshold (for example, $400,000) could significantly boost revenue from high earners. 

• Means Testing Benefits: High-income retirees could see reduced benefits, preserving more funds for those who need them most. Critics, however, argue this undermines Social Security’s role as a universal program. 

• Taxing More of Benefits: Currently, up to 85% of benefits may be taxable depending on your income. Increasing that figure could raise more revenue without reducing benefits directly. 

Congress will likely use some combination of these measures when the pressure builds enough. However, the real question is what does this mean for your personal retirement plan? 

What You Can Do Now 

Here’s the reality: you can’t control what happens in Washington. But you can control how prepared you are. That starts with asking yourself: How much of your retirement income are you counting on from Social Security? 

For many households, the answer is 40% or more. That’s a risky position given the uncertainty ahead. The goal should be to rebalance your retirement income sources so Social Security is part of the plan, not the foundation of it. 

Building Other Income Sources 

This often means strengthening other income streams like Roth IRAs, brokerage accounts, real estate income, or even part-time consulting. Annuities may also play a role depending on your situation. The key is layering these sources so that if Social Security benefits are reduced, your financial stability isn’t. 

Timing Your Benefits 

When you claim Social Security can make a big difference. For each year you delay benefits after your full retirement age, your monthly benefit increases by 8% until age 70. That’s a guaranteed, inflation-adjusted boost for life. Some retirees may even benefit from using what’s called a “bridge strategy” – drawing from savings early to delay Social Security and maximize long-term income. 

Managing Taxes 

Another often-overlooked area is taxation. Social Security benefits are taxed based on something called provisional income, which includes IRA withdrawals, dividends, and even half of your Social Security benefits themselves. Higher provisional income means higher taxes. 

That’s why Roth conversions can be powerful in the early years of retirement. If you’ve stopped working but haven’t yet started required minimum distributions (RMDs), you may be in a lower tax bracket. Converting some IRA funds to Roth dollars during that window reduces your future taxable income and, in turn, lowers the taxes on your Social Security benefits later. 

Spousal Planning 

Married couples have even more opportunities for strategic planning. For example, the higher-earning spouse may delay claiming until age 70, while the lower earner claims earlier. This not only boosts lifetime income but also ensures the surviving spouse receives the higher benefit for life. 

Stress-Testing Your Plan 

Finally, any strong retirement plan should be stress-tested. That means running scenarios where Social Security is reduced by 20%, or the full retirement age is pushed back to 69, or taxation of benefits increases. If your plan still works under those conditions, you’ll know you’re truly prepared for whatever comes. 

Bringing Clarity to an Uncertain Future 

The Social Security debate will continue in Washington, and changes will almost certainly come. But your financial future doesn’t have to hinge on political decisions. By building a retirement plan that layers income sources, manages taxes wisely, times benefits strategically, and accounts for different scenarios, you can retire with confidence. 

At The Noble Group, we work with families, couples, and individuals to build customized retirement income plans and help you navigate legislative changes, market shifts, and unexpected life events. The goal isn’t just to make your money last, it’s to build confidence in your financial future. 

To take the next step, email us at education@thenoblegroup.com to schedule a complimentary review of your situation. Alternatively, you can click here to reach out to one of our offices via phone or contact form. 

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. 

Investing involves risk including loss of principal. No strategy assures success or protects against loss. 

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful. 

This information is not intended to be a substitute for individualized tax advice. We suggest that you discuss your specific tax situation with a qualified tax advisor. 

Government bonds and Treasury bills are guaranteed by the US government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. 

Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.