Social Security Is Not Going to Run Out of Money!

Social Security Is Not Going to Run Out of Money!

April 10, 2023

Social Security has been helping prepare Americans for retirement since 1935, and it has become an important source of income for millions of retirees.

In 2023, an average of almost 67 million Americans per month are receiving a Social Security benefit, totaling more than $1 trillion in benefits paid during the year. And, although almost 9 out of 10 people ages 65 and older were receiving a Social Security benefit as of December 31, 2022, most retired Americans had other income as well. Social Security benefits represent about 30 percent of the income of the elderly.

Reports have been circulating that Social Security is going to run out of money. These rumors have created significant concern among people who are retired or nearing retirement. In fact, as of October 2022, 70 percent of Americans ages 26 and older were worried that the Social Security program will run out of funding in their lifetime, according to the Nationwide Retirement Institute.

Please read on to discover why that is not going to happen.

Social Security is made up of two trust funds

Social Security comprises two trust funds. The Old-Age and Survivors Insurance (OASI) Trust Fund is the source of retirement and survivors’ benefits, and the Disability Insurance (DI) Trust Fund is the source of disability benefits. Both are funded by payroll taxes and interest earned on invested assets.

According to John H. Cochrane, Senior Fellow of the Hoover Institution at Stanford University, the Social Security “trust funds” exist because for a while, Social Security taxes were larger than Social Security payments. Social Security used the extras to buy Treasury debt. Now there are fewer workers, more retirees and more generous benefits, so Social Security taxes are smaller than payments.

But Cochrane points out that Treasury debt is not an asset like a stock or bond; instead, Treasury debt is a claim against future income taxes. Cashing in Treasury debt just means the government will pay for benefits with income taxes.

Cochrane says, “The ups and downs of the trust fund just reflect a change in how we finance spending. While payroll taxes > Social Security spending, which was the case until 2007, then payroll taxes are financing other spending. When payroll taxes < Social Security spending, then income taxes or increases in debt are financing Social Security spending, which was the case after 2008. The trust fund just adds up this change over time. But exhausting the trust fund is, in this view, really irrelevant.”

Shortfalls, yes…complete insolvency, no

It would be easy to panic, given that the Social Security Board of Trustees estimates that Social Security’s cash reserves will be fully depleted by 2033.

It is true that Social Security does not have the cash reserves it once did. In 2021, Social Security operated at a $56 billion loss as income failed to cover costs.

One reason is that Americans are living longer than in the past, thus living in retirement longer. And, as baby boomers retire, fewer people remain in the workforce to contribute to Social Security. Also, birth rates have fallen significantly since the baby boom ended, causing the worker-to-beneficiary ratio to drop from 16.5 in 1950 to 2.8 in 2021. That figure is expected to drop further, to 2.3, by 2035.

However, even if the funds do become depleted, the benefits paid out will not fall to zero, like many people fear. Annual payroll taxes are expected to cover about 78 percent of the benefits each year if the cash reserves do become depleted. And if that happens — which we don’t believe it will — those receiving benefits will still get more than three-fourths of their benefits. At that point, the program would pay out only what it takes in year-to-year in Social Security taxes.

Stephen Goss, Social Security’s Chief Actuary, has worked at the Social Security Administration for 50 years, and he has been the Chief Actuary for almost half that time. He says Social Security is not going to run out of money: “What we really, really try to emphasize is that simply is not the case. Even if the reserves are used up, we’d still have daily money coming in from Treasury from payroll taxes people are paying.”

That projected trust-fund depletion date, Goss said, “is really just to show that we need action by that time.” And in the history of the program, he said, Congress has always stepped up to avert reserve depletion — most recently in 1995 and 2015, when the disability trust fund was on the brink of evaporating.

For many years, lawmakers and policy experts have been discussing strategies to shore up Social Security’s finances. Most of these proposals fall into two broad categories: changing tax policies to funnel more money into the trust funds or adjusting the benefit formula to reduce costs (or some combination of both).

This topic can get quite political. But, politics aside, the program will still be there for you when you retire.

Misinformation fuels the rumor mill

So, if Social Security isn’t likely to become completely insolvent, why do we keep hearing reports that it is?

One reason: misinformation.

A recent report from the Social Security Board of Trustees stated that the OASI Trust Fund, which helps pay the benefits for current retirees (among other eligible Americans), was scheduled to be depleted in 2033, a year earlier than was believed the year prior. Yet in a tweet on their write-up of the report, The New York Times began with, “Social Security will be depleted in 2033…”

This type of misrepresentation of the facts fuels people’s concerns, which is really unfortunate. Please know that as long as there are tax-paying workers, the Social Security program will continue to generate some income each year, meaning there is virtually no risk that benefits will disappear completely.

Let us guide you into and through retirement

If you still have concerns about Social Security, your advisor will be happy to discuss this important topic with you.

We are here to guide you. The more planning you do in advance of retirement, the more confidence you can have about your financial future. A well-planned retirement allows you to live your desired lifestyle without the fear of depleting your savings. Planning also assists you in saving funds for retirement so you do not have to rely solely on Social Security.

We have guided hundreds of people into and through retirement. Many of our clients have achieved success through business ownership, executive roles or other career paths that lead to something different than the conventional definition of retirement. In those situations especially, it is vital to work with a team that has depth and breadth of expertise in the numerous facets of late-career transitions.


The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Tyson Ray and not necessarily those of Raymond James.

Every investor's situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

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