Social Security's new insolvency date on collision course with retiring boomers

Social Security is on track to break down right when America will need it the most.

On March 31, Social Security's board of trustees released its report on the program's finances, which are precarious. The trust fund for Federal Old-Age and Survivors Insurance — the part that benefits retirees — is expected to go insolvent after 2033. 

That's only one year earlier than last year's report predicted, but the timing is significant in another way: 2033 is just a few years after the entire baby boom generation is expected to reach retirement age. According to the U.S. Census, all boomers — the Americans born between 1946 and 1964 — will be at least 65 years old by 2030. 

That's 73 million people, all of whom are on course to receive diminished Social Security checks. If nothing is done to shore up the program, the board of trustees wrote, Old-Age Insurance will only be able to pay 77% of its scheduled benefits after 2033 — just as the need for the program reaches a new height.

That unfortunate coincidence could "cripple our economic system," according to Mary Johnson, Social Security policy analyst at the Senior Citizens League, a Virginia-based advocacy group for American seniors. 

"It's terrible timing," Johnson said. "It would be a very, very severe blow to the economy."

Social Security is a lifeline to Americans of all generations. This year, it will pay out more than $1 trillion in benefits to 67 million people — including 48.6 million retirees, 7.6 million disabled workers, 5.9 million survivors and all their dependents. And according to the Social Security Administration, about a quarter of elderly Americans rely on the program for at least 90% of their income. 

Even for more Americans who are less dependent on the program, it's still a key component of retirement income.

"Social Security is really one leg of that three-legged stool," said Paul Richman, the chief government affairs officer at the Insured Retirement Institute, an insurance research and lobbying group. "There's Social Security, there's private pensions and there's savings and investments. All three are necessary to provide the retirement security that workers and retirees need."

One advantage the program has, however, is that it's extremely popular — something that could motivate Congress to act before 2033. One AARP poll found that 96% of U.S. adults support Social Security. And even among Republicans, according to the Pew Research Center, 54% say the government "should continue to provide programs like Medicare and Medicaid for seniors and the very poor."

But even if Social Security does go insolvent, it's not clear whose benefits would be cut, or by how much. In its report, the board of trustees did not say how the program would apply its expected 23% reduction. And the existing laws on this subject not only fail to answer this question, but contradict each other.

"It is unclear what specific actions [the Social Security Administration] would take if a trust fund were insolvent," the Congressional Research Service, a public policy institute within the Library of Congress, wrote in a 2022 report. "There would be a conflict between two federal laws. Under the Social Security Act, beneficiaries would still be legally entitled to their full scheduled benefits. However, the Antideficiency Act prohibits government spending in excess of available funds, so the Social Security Administration would not have legal authority to pay full Social Security benefits on time."

Johnson put it more succinctly:

"There's no plan," she said. "We really don't know what would happen."

Assuming the cuts would be applied evenly across the board, this shortfall could be significant for some Americans. This year, the average monthly benefit for retirees and their dependents is $1,825. If that were reduced by 23%, the beneficiary would lose $419.75 per month, or $5,037 per year. For someone who relies on Social Security for most or all of their income, this could mean going without basic necessities.

"There is a very significant portion of the retiree population who are very, very dependent on Social Security," Johnson said. "Health outcomes will be worsened, even for people who are middle-income. If we don't have strong benefits and they are cutting back, they could be cutting back on food."

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Affluent Americans are better equipped to adapt but would still need to make up for the shortfall. Some wealth managers have noticed — or even encouraged — a shift in how their clients think about the program.

"We generally view Social Security … as the foundation of someone's retirement," said Ron Strobel, the founder of Retire Sensibly in Meridian, Idaho. "If Social Security is cut substantially, then the foundation of their retirement starts to crack, and they are going to be forced to either spend less, withdraw more, work longer or work part-time, or some combination of those."

Jay Zigmont, the founder of Childfree Wealth in Water Valley, Mississippi, said he deliberately builds a 25% reduction in Social Security benefits into his clients' retirement plans in case there's a benefit cut. But he expects the program to still be around in the 2030s, at least in some form.

"While some clients may not want to count on Social Security at all, the key is to be realistic," Zigmont said. "It may be that Social Security needs to be looked at as a nice-to-have component of a financial plan for the younger generations, rather than a must-have."