What current, future retirees should know about potential Social Security shortfall
Social Security's trust fund that pays retiree and survivor benefits is expected to begin running low on money earlier than previously expected, leading to questions from Americans who rely on the benefits for their living expenses.
Without congressional action, the fund is now expected to begin depleting by the fourth quarter of 2032, according to a report issued Tuesday by Social Security's trustees, the body that manages the trust fund.
The trustees note in the report a handful of changing conditions such as fertility rates, immigration, economic conditions and legislation passed since last year have changed the assumptions on which the report is based.
More than 56 million Americans receive retirement and survivor benefits from Social Security payments each month, according to data from the Social Security Administration.
The money those beneficiaries receives comes from a combination of payroll tax contributions and interest to the Old Age and Survivors Insurance (OASI) trust fund. The amount recipients receive is calculated based on their lifetime earnings.
While projected depletion of the OASI trust fund does not mean that Social Security benefits will go away entirely, it does raise concern, according to experts in the field of Social Security benefits.
According to the trustees' report, the fund would be able to pay 78% of scheduled benefits for the rest of 2032, and then 62% of scheduled benefits until 2100.
"The issue isn't whether Social Security disappears, the issue is whether Congress acts before automatic benefit reductions are necessary," Ryan Swartz, partner and managing director of Creative Planning, a financial planning service, told ABC News.
Brett Loper, executive vice president for policy at the Peter G. Peterson Foundation, a nonpartisan organization focused on financial policy, said he too is concerned whether Congress will be able to pass legislation to shore up funding before the 2032 timeline.
"I'd say it's like flashing yellow about to be flashing red warning sign," Loper said. "Six years is not a very long time in terms of major legislation."
Tyler End, CEO and co-founder of Retirable, a retirement planning firm, also stressed that time is of the essence.
"We are kind of getting to the point where the rubber is hitting the road, and we're running out of time to make changes," End told ABC News. "But there should be enough support, because everyone does rely on this in some capacity."
The Social Security trustees - Treasury Secretary Scott Bessent, Health & Human Services Secretary Robert F. Kennedy Jr., Social Security Commissioner Frank Bisignano and acting Labor Secretary Keith Sonderling -- say in the report that lawmakers could solve the funding issue by raising the tax rate, lowering benefits, changing eligibility requirements for benefits, or a combination of those approaches.
In the meantime, experts who spoke with ABC News said that taxpayers' reactions to the projected funding shortfall should vary based on their age and employment status.
All agreed that immediate significant financial decisions should not be made based on these projections.
Workers nearing retirement age need not panic but should pay attention, according to Swartz, emphasizing that current and near-future retirees would continue to have "some level of Social Security."
"Near retirees should not make major financial decisions based on solely the projection on their Social Security cuts," he said, adding his advice to them is to, "Save, consistently, diversify where they're getting their retirement income sources and building the flexibility into the retirement spending."
End also encouraged a cautious approach for workers nearing retirement.
"The first thing to do is step back and don't make any mistakes," he said, warning workers against potentially claiming their Social Security too early and thus locking in a higher tax rate and lower benefits.
He added it would be wise for people nearing retirement age to reassess their retirement plan and start to consider what their plan might look like if they receive a smaller portion of Social Security benefits than previously expected.
For those seeing the projections and wondering what their next move should be, Swartz said younger workers should start thinking of Social Security as only one part of their retirement planning.
"Social Security should be viewed as a part of that foundation of retirement income, but not the entire amount that they're gonna need in retirement," he said, adding that younger workers should build a retirement plan that is not totally dependent on the federal government.
End also advised younger workers to plan ahead for their retirement, while viewing Social Security as more of a social safety net.
"I think too many young people get caught up in, like, all right, what's the ROI [return on investment] of these taxes that I pay," he said. "But like this is an investment account, it's a social program to make sure that, you know, we don't have people like living on the streets in old age."
