Social Security’s future is an oft-lamented topic and one deserving of the attention it garners, particularly when accounting for the U. S. retirement crisis and long declining access to defined benefit pension plans.
Put simply, older current recipients of Social Security don’t have much to worry about, but it can be argued that’s the end of the good news. The bad news is, well, bad. The recently released 2025 Social Security Trustees Report indicates the system will hit a cash flow deficit in 2033 – one year earlier than forecast in the 2024 report.
Shoring up Social Security – it can be done – involves tough choices. Not just tough, but politically unpopular and that’s pertinent because alterations to the program must be accomplished through legislation. The “easy” fixes are cutting benefits or raising taxes. Obviously, the former wouldn’t be fair to current recipients or those close to joining that category. Likewise, the specter of high Social Security taxes would be unpopular because it’d shift added burden onto current workers with no guarantees the move would ensure solvency for decades to come.
There’s also the possibility of again raising the age at which full benefits can be claimed, but it’s already 67 for those born after 1960, according to the Social Security Administration (SSA). Going beyond that would likely be politically unpopular, too.
What’s Ailing Social Security?
Many things, including profligate government spending, ail Social Security, but two issues – one old, one new – can’t be ignored.
“Much of the crisis is being fueled by the overall aging of the U. S. population. Payroll taxes are the primary source of Social Security’s funding—and the ratio of working people to retirees has been steadily shrinking since 1950, when there were 16. 5 workers to support each retired beneficiary,” notes Sharon Carson, retirement strategist at J. P. Morgan Wealth Management. “Today, the ratio is 2. 7. And, by 2045, the ratio of workers per beneficiary will have declined even further, to 2. 2. ”
She highlighted another issue that’s flying under the radar. Toward the tail end of the Biden Administration, the Social Security Fairness Act was passed, providing some public workers who receive defined benefit pensions with increased Social Security benefits.
The politics of that move can be debate and while it was probably a well-intentioned action, it could be a drag on Federal Old-Age and Survivors Insurance and Federal Disability Insurance (OASDI) funds, as Carson points out.
Talking It Over with Clients
Clients are right to be concerned about the state of Social Security, but it’s not all doom-and-gloom and advisors should convey as much. For baby boomer clients, it’s worth discussing concerns related to potential benefit reductions and note that Congress is unlikely to traverse that path.
“Should those who are eligible take their benefits before the trust fund is depleted to avoid a possible cut in benefits? No. Eventually, we believe, Congress will be forced to act to avoid benefit cuts for retirees,” adds Carson.
Younger clients might be in a tough spot because, without congressional action, receive lower benefits than they’re expecting. The system is unlikely to go belly-up, but if nothing changes, the projection is that there will be enough revenue to fund 75 year of benefits at 72% of current expectations. That’s better than nothing, but it’s not fair to younger workers paying into the system today.
“We think Congress will elect to shrink the funding gap and ease potential benefit cuts for younger workers by changing or eliminating the cap on income subject to payroll taxes, which currently is set at $176,100,” concludes Carson. “Still, there is a possibility younger workers may see some benefit reductions, likely phased in over time, with young, high earners the hardest hit. ”
