May 01, 2023

In March the latest report on the financial health of the Social Security system was released. It’s officially called “The 2023 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds” and covers the next 75 years. Recent versions haven’t been great, and unfortunately, things got a little worse.

Last year, 2035 was the predicted “insolvency” for the program, after which only 80% of benefits can be paid out. It’s now down to 2034, which is effectively a two-year hit because one year was lost and another year went by where no fixes where implemented.

Inflation caused the accelerated exhaust date. The cost of living adjustment (COLA) for 2022 was 5.9%, and it was 8.7% this year. Those big COLA bumps deplete funds faster.

Should you worry about your Social Security benefits?

Well, the longer Congress delays fixing the system, the closer we run to “insolvency,” which means getting $0.80 on your Social Security dollar. But you probably don’t need to worry. If 2034 arrives and there’s no money left in the trust fund, payroll taxes are enough to pay 80% of scheduled benefits.

Should you take benefits early, before cuts are enacted? That depends on many factors. But would you rather take a 20% haircut on a larger or smaller amount of Social Security income? The higher your benefit is, the higher it will remain after the cut. So, it still pays to wait if you can.

In 1983, the system was within months of disaster. Congress then quickly acted to prevent benefit cuts. Today, it would be nice if changes were instituted sooner, but Congress could wait until 2034 to act.