It doesn’t matter if you’re 66 or 6 (you’re going places if you’re reading this at 6!), Social Security will matter for you. Unfortunately, the program is barreling down a path that could render it less effective.
This is because current workers’ payroll taxes fund retirees’ checks. This model works when you have a strong and healthy working-age population in higher numbers compared to the retired population. However, once you have a high number of retirees and a not-so-high number of workers, this model starts to fall apart.
Judgment day is approaching because the Congressional Budget Office penciled it in for 2032. Social Security’s retirement trust fund has six years before it runs dry, and then it starts cutting checks for everyone.
What does judgment day mean for you?
Social Security has a buffer, which is the Old-Age and Survivors Insurance Trust Fund. This trust fund holds $2.3 trillion in special-issue Treasury securities as of the most recent update. When payroll-tax revenue comes in lower than current benefit obligations, the program needs to draw from this fund to cover the gap.
Surprise, surprise, that has been the case every year since 2010. And yes, it has been almost 17 years since then.
Social Security does not feel broken just yet due to that trust fund, but it could break suddenly.
So what happens when the fund runs out?
Incoming payroll taxes will cover 77% of total scheduled benefits, and the law triggers an automatic, across-the-board cut of about 23-28% on every retiree’s check the day after depletion.
Your Social Security check is going to go down from $2,000 to $1,440. And by then, the cost of living is probably not going to cooperate either.
The doom loop that might be coming
Social Security’s annual cost-of-living adjustment is tied to a measure called the CPI-W. When inflation goes up, the COLA goes up. It’s good for keeping Social Security beneficiaries up to speed with the cost of living, but when inflation is high, the fund drains that much faster. Not only that, COLA increases the money you get during periods of inflation, but it does not decrease your checks during deflationary periods.
If this AI boom does lead to a once-in-a-lifetime deflationary environment, it’s going to lead to a very interesting outcome for Social Security beneficiaries.
If not, it could lead to a doom loop, through tariffs, wars, and interest rate cuts. Trump has long pounded the table for rate cuts, and in tandem with higher oil prices and tariffs, could lead to a second wave of inflation and make Social Security’s woes even worse.
Trump is also the solution
Social Security’s “Trump Bump” isn’t something you should take for granted. If you’re already retired and eligible, you could invest portions of it in the Trump bull market or in dividend stocks if you wish to play it safer. You will be much better prepared to face a potential Social Security cut in the coming years with a solid stock market portfolio.
If you are not a retiree, the coming decades are going to be tough with AI and welfare cuts across the board. People used to find their niche and stay in that lane for decades until retirement, comfortably making enough to retire even without Social Security. That’s may no longer be the case due to AI and potential Social Security cuts.
The best remedy might be to live frugally and invest in AI hardware stocks, then slowly rotate into safer dividend stocks for retirement. Here’s a $2,000-a-month dividend portfolio you could target with a little less than half a million in the bank.
The ongoing rally could last long enough for you to get there if you are young. And if you are an older folk who already has that much, consider yourself lucky!
Top Gaining Stocks
Top Losing Stocks