Social Security Depletion – What You Should Know

By the year 2034, the Social Security Trust fund will be depleted, and benefits will be reduced by 20% if nothing changes, according to the Social Security and Medicare Board of Trustees 2023 Annual Report. This will have a disastrous effect on the more than 66 million Americans who rely on Social Security for benefits^[i]. Any changes to Social Security require congressional action.

Each year the Board of Trustees publishes a report on the financial health of both Social Security and Medicare. Here are some key things to know.

Social Security and Medicare Trust Funds
There are four trust funds for Social Security and Medicare programs, all of which were created by Congress. The assets and income in each fund are designed to pay for administrative expenses and benefits for each specific program, and any excess is invested in non-marketable U.S. government securities.

The first and largest is the Old-Age and Survivors Insurance (OASI) trust fund, designed to pay retirement and survivor benefits. The second is the Disability Insurance (DI) trust fund, which pays disability benefits.

While these are distinct and separate entities, they are combined to form the hypothetical OASDI trust fund to illustrate the status of the Social Security program.

Third is the Hospital Insurance (HI) trust fund, which is designed to pay for Medicare Part A benefits. Lastly, is the Supplementary Medical Insurance (SMI) trust fund, designed for pay for Medicare Part B and Part D benefits.

Planning For the Future
Retirement planning should be done early and often to get sense of where you stand. Planning for retirement either without, or with a reduced Social Security benefit can’t hurt. For those who haven’t already done so, create an online account at www.ssa.gov; this will provide an overview of not only your benefit amounts but also other important details, such as your earnings history. Many people don’t know what benefits they are entitled to as the Social Security Administration stopped mailing statements more than a decade ago.

Because the Social Security trust fund faces depletion, some retirees will feel the need to collect early to lock in a benefit. However, collecting early at age 62 means benefits could be reduced by as much as 30%. Retirement can last several decades and at the very least, retirees should wait until full retirement age, and for those that can afford to do it, waiting until 70 is optimal.

Saving more toward retirement can only help, and once you have maxed out your 401(k) and IRA (Roth or Traditional) contributions, the next options are saving through taxable investment accounts, life insurance and non-qualified annuities.

Everyone has a different situation and circumstance, so consult with your financial and tax advisor for a plan of action that suits your needs.