Social Security Bankruptcy—Fear or Fact?

Good to Know

Social Security consists of two major benefit programs—disability and retirement/survivorship.  We’ll address these programs in just a moment, but first, the author will contrast the crucial difference between Social Security “solvency” and “bankruptcy.”

  • Solvency is the ability to pay 100% of benefits.
  • Bankruptcy is the inability to make any significant benefit payments.

Contrary to fear-mongering headlines, Social Security is not bankrupt and is unlikely to go bankrupt. As long as workers are employed and paying Social Security taxes some level of benefits will be paid. However, not all programs are solvent.

We’ll begin with the good news—our well-funded disability program.

Social Security Disability

The 2023 Trustees Report (the Report) advises that the Disability Income Trust1 is projected to remain solvent for another 74 years, until 2098. Stated another way, 100% of approved disability claims are currently estimated to be paid fully until almost the beginning of the next century.

Retirement and Survivorship

The news is not as encouraging for the Social Security Retirement (“Old Age”) and Survivorship Trust.1 Retirement benefits for existing and new retirees will be fully paid until 2033—after which all new claims for retirement benefits and benefits being paid to current retirees will be cut by about 20%.

Not Our First Rodeo

We’ve been here before. Our nation navigated through insolvency four decades ago as well. In a welcome (if now nostalgic) show of bipartisan statesmanship, both sides of the aisle joined to pass Social Security reforms in 1983. The most impactful reforms consisted of taxing benefits,3 gradually raising full retirement age from age 65 to 67, and increasing the amount of compensation subject to Social Security tax.  In retrospect, those reforms restored Social Security solvency for an estimated 50 years (1983 to 2033).

Planning Implications

Financial Advisors should encourage clients to model their retirement assuming Congress does nothing (please, refrain from sending your favorite “Congress” joke to the author).  If the worst case 20% cut becomes real in 2033, planning now could avoid last-minute panic.  The worst case plan could include working longer (but not past age 70) 2, working part-time in retirement, considering a reverse mortgage, downsizing earlier than planned and a host of other potential solutions.

Here's one perspective—if poor health points to an early retirement that may still be appropriate. If in great health with a family history of longevity, then delayed claiming should still be considered. The right decision for you should be made in consultation with a credentialed Financial Advisor or Planner.

Call to Action

“Some people make things happen, some watch things happen, while others wonder what has happened.”

The timeless wisdom of this quote by former First Lady Eleanor Roosevelt guides us today.  Help make things happen by contacting your Representative and Senator—ask their support to reform Social Security once again.

Financial advisors and planners need a sound understanding of the competitive edge of joining the ranks of highly-trusted financial professionals. Get that sound understanding through our CFP® Curriculum when you consider CFP® certification. You’ll discover a select few of the reasons our student pass rates are much higher than the national averages.

1 The “Trust” is comprised of special issue U.S. Treasury Bonds.

2  Working past normal retirement age (66 to 67) until age 70 increases the retirement benefit by 8% annually.

3 Most retirees will include 50% or less of their Social Security Retirement benefits in their Federal gross income.