What Will Actually Happen to Your Social Security If the Trust Fund Runs Dry?

Social Security’s trust fund is at risk of running dry.  There’s no question about whether this will occur on the current trajectory. The only question is when it will occur.

The most recent Social Security Trustees’ report estimates that the trust fund will be out of money in 2034 if the retirement trust fund and disability trust fund are combined (which is expected to be the most likely outcome).  However, the Congressional Budget Office (CBO) has warned that the deadline day for the trust fund is likely going to be sooner, with the fund running short as early as 2032. 

Regardless of the specifics, those are scary numbers for both current and future retirees who depend on Social Security as a key source of income. However, while the trust fund running dry definitely would not be a good thing for anyone, it is also important to understand what it would actually do to your benefits. 

Here’s what you need to know about how your Social Security checks could change if the trust fund ends up depleted. 

This is what happens if the Social Security trust fund runs out

While many people fear that the Social Security trust fund running out would result in benefits dropping to $0, that is simply not the case. The reality of what would happen is that the trust fund would not be available to provide reserve funds.

However, Social Security is not funded solely by the trust fund. It is also funded by current workers who pay into the system, as well as by retirees who pay taxes on at least part of their Social Security benefits once their provisional income is higher than $25,000 for single tax filers or $32,000 for married joint filers (with provisional income equaling half of all Social Security checks, all taxable income, and some non-taxable income). 

The revenue coming in from the collected taxes is substantial. So Social Security retirement benefits would not disappear, or even come close to doing so. Instead, all of the revenue collected from current workers could be distributed among retirees. This would mean that those who receive Social Security income would still collect the majority of the promised benefits.

The most recent Trustees’ report indicates that tax revenue provides enough to pay around 81% of scheduled benefits. However, these estimates have varied over time.  In general, the estimates have ranged from Social Security being able to continue paying around 77% to 81% of the promised amount of  expected benefits.  Although this still means retirees would lose a lot of income they may have been expecting, things aren’t as dire as some might fear.

Will the trust fund be allowed to run dry?

Of course, the very big question that’s on the table is whether the trust fund will be allowed to run dry. And the most likely answer to that is no. Or, if it does run out, Congress will probably step in to provide money from other sources to prevent retirees from a big benefit cut (although this would require a change in the way that the law is structured). 

There are many possible ways to prevent a 20% or so cut to the income seniors depend on, and Congress will almost inevitably find some options that don’t involve a huge income cut for a powerful group of voters. However, it’s unclear exactly what solution will be the consensus solution, and some proposals on the table do involve other changes seniors may not like, such as full retirement age being moved later.

The fact is, the future of Social Security is out of your control. So if you want to make sure you have the benefit you deserve, you’ll need to work with a financial advisor to make a plan to save and invest so you can support yourself no matter what happens to Social Security’s trust fund.