If social security runs out will I get my money back?

Unless policymakers act to balance the program’s costs and revenues, Social Security’s combined trust fund will run out in 2035.

A depleted trust fund would result in Social Security not being able to pay all benefits scheduled under current law, a disastrous outcome for 81 million retirees, disabled beneficiaries, and their families.

Social Security beneficiaries would live in poverty by more than 50 percent if the trust fund ran out, according to our new projections. Social Security accounts for a smaller share of income for whites, so poverty rates would increase more for Black and Hispanic people.

It is unlikely that Congress will allow the Social Security trust fund to be drained and trigger a sharp reduction in benefits. However, our estimates show what’s on the line if Congress fails to act.

If social security runs out will I get my money back

This is a pay-as-you-go system, so unless the law changes, the program will always have money flowing.

It’s entirely possible, however, that at some point the money coming in might not be enough to cover all the benefits promised, since fewer and fewer workers are contributing to a program that supports more and more retirees. According to the most recent estimates, Social Security will reach that point in 2035.

Social Security won’t suddenly stop paying benefits to everyone once it runs out of money, but it will make those benefits smaller.

Here is a video that provides a more detailed explanation:

A financial crisis for Social Security is looming

As the nation’s largest federal program, Social Security provides crucial financial support to retirees, people with disabilities, and their spouses, dependents, and survivors. 67.2 million people received $119 billion in monthly benefits in January 2024. About half of the income received by households headed by adults 62 and older (PDF) comes from Social Security benefits, including two-thirds of the income received by households in the bottom half. 

It is estimated that this year’s shortfall will reach $100 billion because Social Security benefits have exceeded program revenue each year since 2021. Since payroll taxes from tens of millions of employed baby boomers dwarfed benefits paid to retirees over the past four decades, the program has been able to plug the hole in its budget by tapping its trust fund.

As the workforce grows slower and more boomers collect benefits, Social Security is falling out of balance. In 2033, 2.4 workers are expected to contribute to Social Security per beneficiary, down from 3.4 in 2000. Policymakers would face a projected $332 billion shortfall if they maintained current revenue streams and benefit rules. 

According to Social Security’s trustees’ intermediate projections, the retirement and disability trust fund will be depleted by 2035.

What is the impact of trust fund depletion on beneficiaries’ incomes?

Social Security cannot pay benefits more than its available funds under federal law. The trust fund will still collect over $1.6 trillion from workers and income taxes on Social Security benefits, even if it runs out in 2035. Social Security trustees, however, predict that in 2035 it will only be able to pay 83 percent of its scheduled benefits, and that share will eventually shrink to 73 percent.

Despite its nearly 90-year history, Social Security has never been unable to pay scheduled benefits, so it is unclear how the Social Security Administration would allocate funds should a shortfall occur. In this case, available funds would be allocated proportionately, with the same percentage reduction applied to all beneficiaries. 

The Dynamic Simulation of Income Model 4, Urban’s unique forecasting tool, projects the impact of trust fund depletion when benefits are reduced by the same amount across the board. Based on our estimates, if Congress did not increase Social Security revenues in 2022, median annual benefits would fall $5,900 (measured in 2022 inflation-adjusted dollars) in 2045.

Also check: What Happens If You Lose Your Social Security Card?

As of 2045, the median annual income of people over the age of 62 and receiving Social Security disability benefits would drop by 14 percent. The reductions would be greater among low-income families, whose income is disproportionately affected by Social Security. Those at the bottom of the income distribution would suffer an 18 percent reduction in income if the Social Security trust funds were depleted, compared to those at the top.

Is poverty likely to rise as trust funds are depleted?

Those collecting Social Security who live in poverty will disproportionately suffer if the trust fund runs out due to its disproportionate impact on people with low incomes.

3.8 million people age 62 and older or collecting Social Security disability benefits would be in poverty by 2045, an increase of 55 percent, according to our projections. People of color would be particularly affected. Older Black and Hispanic people and people who collect disability benefits would experience a 6 percent increase in poverty, but white people would experience only a 3 percent increase.

Social Security’s finances should be strengthened now by policymakers

A reduction in program revenues, a reduction in benefits, or a combination of modest revenue enhancements and moderate benefit cuts can be used to close Social Security’s financing gap and prevent the trust fund from running out. As with Medicare, Congress could also use general revenues to pay Social Security benefits.

There are many Democratic proposals that would lift the Social Security payroll tax cap on earnings, including one put forward by President Biden during his 2020 campaign. In spite of the 75-year deficit, actuaries predict that raising the payroll tax cap would substantially extend Social Security’s life. Taxing other income, such as investment income, is another common proposal, as well as increasing the Social Security payroll tax.

Republicans frequently propose reducing benefits for higher-income people, raising the retirement age, and trimming cost-of-living adjustments to fix Social Security’s finances. The cuts in Social Security benefits could raise poverty rates among beneficiaries, but policymakers can mitigate this by expanding Supplemental Security Income, a cash benefit for people with disabilities and little income.

The Congress should act soon, regardless of what path it chooses. Retirees don’t pay payroll taxes, so every time policymakers delay increasing contributions or cutting benefits, another generation is insulated from these changes. Most proposals would exempt retired people from benefit reductions as well. In addition to reducing the time workers have to prepare for benefit reductions, delaying changes also reduces their ability to do so.

Policymakers can restore workers’ confidence in Social Security by spreading the costs of fixing it across more generations, giving them more time to plan for retirement.

In the event that the money runs out, what happens?

As the tax revenue from current workers is the only source of funds for paying social security benefits, it will be like living paycheck to paycheck like you did in your twenties. 

At that level, 77% of benefits are estimated to be paid. That’s a 23% cut for everyone receiving benefits. The good news is that that level is essentially sustainable. The report’s long-range projection of 75 years ends in 2097, when 74% of benefits have been cut.

Is Social Security going away when I retire?

Even if nothing was done to change the current system, you’d still have roughly three quarters of what you expected if you ignored your social security benefits. If you want to bet against statistics, ignore your social security benefits. It is likely, however, that the entire retired population, which constitutes a significant voting bloc, will agree to a 23% reduction. An immediate drop of 23% in America’s pension plan would bring them out in droves, and a do nothing approach would place a burden on other social programs.

How Can It Be Fixed?

According to the report, a permanent and immediate increase in payroll taxes of 3.44% (1.72% for employees and 1.72% for employers) would be required if the entire freight were paid by the current working population. In contrast, if payroll taxes were left unchanged, benefits for all current and future recipients would decrease by 21.3%.

What are the chances of it working out?

Congress used a gradual approach to delay the Full Retirement Age (FRA) from 65 to 67 in the last time it increased the FRA, but we have some precedent here. It was phased in, with those nearing retirement grandfathered in under the previous, more favorable age calculation. It is likely that phase-in will occur – especially if it impacts beneficiaries.

There are multiple tools available to Congress:

• Increase the 6.2% payroll tax employees pay (5.3% goes to OASI and 0.9% to DI)
• Employers’ payroll taxes should be raised by 6.2%
• Taxing the first $160,200 of wages as part of the Social Security Wage Base
• Other ways to increase tax revenue
• Re-extension of the retirement age
• Benefits should be subject to means testing
• Calculating the Cost of Living Adjustment (COLA) differently
• Excluding certain esoteric “claiming strategies” for Social Security
• Other ways of reducing benefits
• Increasing taxes and reducing benefits in some combination

It was strongly recommended that Congress act quickly to address these issues, as every year of delay means the solution has to be compressed into fewer years (read: more painful adjustments). The changes would be spread across a larger number of generations if they were implemented sooner.

We certainly won’t bet on a limb and predict that this will be addressed right away given that delaying important financial matters until the last minute (or beyond) appears to be a favorite local pastime in Washington. Although this is a growing concern among Americans, it wouldn’t be shocking to see this issue addressed before the end of the year.

Is there a way to plan for future changes?

In the next two decades, something’s got to give. It may be a combination approach, which involves both workers and retirees bringing social security back on track.

In terms of planning for it, the best approach appears to be to factor in a slightly lower social security income benefit when running your own retirement projections, besides boosting the worker pool by making more babies. Making babies isn’t nearly as fun as it sounds.

Despite Congress’ obsession with can-kicking, there’s still some road to go before the social security cliff in 2034. So don’t expect an immediate solution. But don’t believe the misinformation either. It is unlikely that Social Security will disappear when the trust fund runs out.

Take advantage of Congress’ procrastination if you already receive benefits. But if you are still paying into the system, consider the possibilities that your contributions may increase, and your benefits might be a bit lower than they are now.

Whatever you decide – retired or not – you must promise me you won’t read those 276 pages of mind-numbing statistical mumbo jumbo in their entirety.