One of the biggest concerns pre-retirees have about Social Security is that the program is going to run out of money, leaving them high and dry in their old age. This fear is based on the fact that the Social Security reserve fund is going to be depleted by 2035.

Let’s make it clear right up top: Social Security is not going to stop paying benefits, even when the fund runs out of money. Payroll taxes and other income sources can pay up to 79% of outgoing benefits – if nothing changes to make up the gap, the worst case scenario is a reduced benefit, not a total stoppage of payments.

Some people will try to tell you to take your Social Security benefits as early as possible – right now, that’s age 62 – in order to get as much money out of the program before it goes bankrupt. This is fundamentally bad advice. When you take your Social Security benefits before full retirement age, they are permanently reduced. That has a massive impact on your retirement right now and in the long run. You should wait as long as possible before taking Social Security.

Want more information on how the Social Security fund works, how we can make Social Security sustainable, and when to take your Social Security benefits? Keep on reading.

How long will Social Security last if nothing changes?

Social Security brings in money through three sources: income taxes on Social Security benefits, interest on their reserve fund, and the Social Security payroll tax. The payroll tax is the largest source of income, making up 89.6% of the Social Security Administration’s total income in 2022.

Right now, the Social Security Administration (SSA) makes enough money from these three sources to cover their annual expenses and add to their reserve fund. But the status of the Social Security fund has worsened since 2020. In 2020, the SSA said the Old-Age and Survivors Insurance (OASI) Trust Fund could pay full benefits until 2034, but in 2021, that year was moved up to 2033. The Disability Insurance Trust Fund can pick up the slack until 2034, which is also a year earlier than was predicted. After the depletion in 2034, SSA will be able to pay 78% of outgoing benefits, decreasing to 74% by 2095.

If nothing changes, Social Security would have to reduce benefits to match their income starting in 2034. Benefits would not stop completely, as many claim.

How can we make Social Security sustainable?

There are two major suggestions for how to make up the Social Security funding shortfall, and both are relatively simple.

Democrats, by-and-large, have proposed changing the payroll tax cap. In 2022, individuals only pay Social Security taxes on the first $147,000 of income. This cap goes up a small amount every year based on the national average wage index. Democrats have suggested increasing this cap significantly or removing it entirely. Some Democrats have also suggested increasing the Social Security payroll tax for higher earners.

Republicans, on the other hand, have focused on reducing the cost of the program. Their proposal takes increased longevity into account by increasing full retirement age, making future retirees wait longer to receive benefits or take a larger cut in benefits in order to get them early. Note that this proposal would only affect future retirees – people already receiving benefits would not see a change.

On the surface, these two proposals seem relatively simple. So why haven’t they been enacted yet? No matter which proposal you choose, some group of people is not going to be happy, either because they’re getting reduced benefits or because they’re paying higher taxes.

But you know what will make absolutely no one happy? If Congress allows the Social Security reserve fund to run out, throwing the program into crisis and sending retirees into dire financial straits.. It would be political suicide for either party if they don’t fix the Social Security funding problem. But, as we all know, politicians tend to deal with the problems right in front of their faces and wait until the eleventh hour to fix those coming down the road.

When should I take my Social Security benefits?

No matter what happens with the Social Security program, you should not let that uncertainty affect your decision of when to take Social Security benefits. Some folks will tell you that you should start taking benefits at age 62 – the earliest age you can claim benefits – in order to get as much money from the program as possible before it runs out of cash. This advice is based on a fundamental misunderstanding of the facts.

As we mentioned above, in a worse-case scenario, the SSA can still cover 78% of outgoing benefits. If you choose to take your benefits at age 62, your benefits will be permanently reduced. In the worst case scenario, your already-reduced benefits would just be reduced again.

You should wait as long as possible to claim your Social Security benefits. Your possible benefit increases every month between the ages of 62 and 70 – the longer you can hold off, the larger your monthly benefit will be. Social Security is the foundation of your retirement income, and ensuring that you get the largest benefit possible is key to being able to cover your fixed living expenses for the rest of your life.

Do you have a retirement income shortfall?

Social Security is the foundation of your retirement income, but do you know how much you’re going to receive? And what can you expect to draw from your retirement accounts, like 401(k)s and IRAs? Will it be enough to cover your expenses? Plan for a better future with an affordable, professionally prepared retirement plan today for answers to these questions and more.

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