Weekend Read – What’s Next for Social Security?
03/31/2025Weekend Read – What’s Next for Social Security?
I take pride in personally crafting each of these emails. Unlike many others in the industry who rely on prewritten content, I write these myself from scratch. My goal is to boil down complex concepts and share relevant news in an easy-to-understand format. I hope you find them both informative and enjoyable.
Let’s start with the big picture. Every year, Social Security collects money, mostly through payroll taxes, and sends it out in the form benefits. For decades, it collected more than it paid out, allowing the program to build up a surplus in its trust fund.
But that trend has reversed. Since 2021, the program has been paying out more in benefits than it collects, and the gap is growing9. In 2024, it took in around $1.41 trillion and paid out about $1.48 trillion, creating a $67 billion shortfall. That gap is covered for now by drawing down the trust fund, which at the end of 2024 held $2.7 trillion10. But at this pace, that fund is projected to be exhausted by 203310.
So, what changed?
Two main things:
To sum it up: fewer people are paying in, more people are drawing out, and they’re drawing for longer. That’s why the program is running out of reserves.
Once the trust fund is depleted, Social Security won’t disappear, but it will only be able to pay out what it collects in real time, which by today’s calculations will be 77% of what’s been promised unless Congress steps in5.
What Reforms Are Being Proposed?
As we get deeper into the 2025 policymakers are starting to propose solutions. Here are some of the most frequently mentioned. I’ll try and offer my opinion on each:
1. Raising the Full Retirement Age
Currently 67 for those born after 1960. Some proposals suggest pushing it to 68, 69, or even 70. This would reduce how long they have to pay out and future obligations but mostly affects younger workers, not current retirees.
2. Lifting the Payroll Tax Cap
As of 2025, only the first $176,100 of a worker’s wages are subject to the 12.4% Social Security payroll tax. Earnings above that aren’t taxed for Social Security at all.
One proposal is to raise that income cap or even reinstate the tax on earnings above a certain high-income threshold—say, over $250,000. Some versions of the idea go a step further and suggest a progressive payroll tax, where higher incomes are taxed at higher rates.
While this change would generate significant revenue for the system, it’s also highly politically sensitive, as it would affect higher earners who currently stop paying the tax once they reach the cap. Especially considering the proposal for means testing.
3. Raising Payroll Tax Rates
The current combined tax is 12.4% (split evenly between employees and employers). A gradual increase to 13% or higher is also being discussed as a way to extend solvency.
4. Means Testing
Under this idea, high-income retirees would receive reduced or no benefits. This could change Social Security from a universal benefit to one that’s more “needs based”. Imagine paying more during your working years and then being told you make too much to receive any benefits…
5. Immigration Reform
Roughly 11 million undocumented immigrants currently live in the U.S., many of whom don’t contribute to Social Security. Legalizing their status and bringing them into the formal tax system could widen the contributor base.
Realistically, no single fix will be enough. Lawmakers will likely need to combine several of these measures, and if history tells us anything, they’ll probably wait until the last possible moment to act.
So where does this leave us?
Deciding when to take Social Security is one of the biggest retirement decisions you'll make. You can start as early as age 62, or wait as late as age 70. The longer you wait, the larger your monthly benefit, but the fewer years you receive it. In fact, you can currently expect a roughly 8% growth in the amount you’d receive for every year you wait which means the difference between taking it as 62 and 70 can be nearly double7.
What’s the breakeven point?
The break-even point, is where the total lifetime benefits of waiting to 70 catch up to taking it early at 62. For most that is around age 828. If you have health concerns or family longevity is low, starting earlier might make more sense.
Could Potential Benefit Cuts Affect When You Should Claim?
This is where it gets a little complicated. As we’ve covered, if Congress doesn’t act, Social Security is projected to reduce benefits by about 23% starting in 2033, because the trust fund will be depleted, and the program will rely solely on incoming payroll taxes.
That might lead some people to think, “Maybe I should start taking benefits early, just in case.” Which isn’t the worst idea in my opinion, but here’s the catch. Benefit cuts may apply to everyone, in which case they may affect you whether you’ve already started collecting or not. Although, I can see the argument in trying to get a few years under you belt of “normal” benefits before they pull the rug out from under us.
I think it’s important to clearly state that when people say Social Security is going to run out of money, that it doesn’t mean you won’t receive any benefits. The reality is that they will only be able to pay out what they take in which as we’ve discussed is projected to be 77% of what they’ve promised.
I’ll be keeping an eye on these developments as things progress over the next few years and keeping you updated as usual. And as always, if you’d like to talk through how this may impact your own plan, I’m happy to have that conversation.
If you’ve only recently joined my email list, you’ve missed out on many insights and updates that I've been sharing each week. Be sure to visit my blog to explore past content that you might find valuable.
Enjoy your weekend,
Jeremy Raffer, MBA
Director & Wealth Manager
Author “Financial Planning for Widows”
m. 201-747-2705
w. rafferwealthmanagement.com
e. [email protected]
Steward Partners
115 W. Century Rd, Suite 145
Paramus, NJ 07652
1 https://www.ssa.gov/history/ratios.html
2 https://www.ssa.gov/policy/docs/chartbooks/fast_facts/2024/fast_facts24.html
3 https://www.ssa.gov/OACT/TR/TR02/lr5A3-h.html
4 https://www.cdc.gov/nchs/products/databriefs/db492.htm
5 https://www.ssa.gov/OACT/TR/2024/tr2024.pdf
6 https://www.ssa.gov/benefits/retirement/planner/maxtax.html
7 https://www.ssa.gov/oact/quickcalc/early_late.html
8 https://www.ssa.gov/OACT/quickcalc/early_late.html
9 https://www.ssa.gov/oact/trsum
10 https://www.ssa.gov/oact/progdata/assets.html
The views expressed herein are those of the author and do not necessarily reflect the views of Steward Partners or its affiliates. All opinions are subject to change without notice. Neither the information provided nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Past performance is no guarantee of future results.
AdTrax 7786571.1 Exp 3/26
I take pride in personally crafting each of these emails. Unlike many others in the industry who rely on prewritten content, I write these myself from scratch. My goal is to boil down complex concepts and share relevant news in an easy-to-understand format. I hope you find them both informative and enjoyable.
Let’s start with the big picture. Every year, Social Security collects money, mostly through payroll taxes, and sends it out in the form benefits. For decades, it collected more than it paid out, allowing the program to build up a surplus in its trust fund.
But that trend has reversed. Since 2021, the program has been paying out more in benefits than it collects, and the gap is growing9. In 2024, it took in around $1.41 trillion and paid out about $1.48 trillion, creating a $67 billion shortfall. That gap is covered for now by drawing down the trust fund, which at the end of 2024 held $2.7 trillion10. But at this pace, that fund is projected to be exhausted by 203310.
So, what changed?
Two main things:
- Demographics – For decades, there was an average of 3.3 workers contributing for each retiree receiving benefits1. Today, that number is closer to 2.7 workers per retiree—and estimates are that it will reach 2.3 by 20362. As Baby Boomers retire, the number of people collecting benefits is increasing dramatically, while the number of younger workers contributing hasn’t kept up.
- Longevity – In 1940, the average 65-year-old lived to about 72. By the 1980’s, that number was 813. Today, that number is closer to 854. That means people are not only retiring in larger numbers, they’re also collecting benefits for longer than previous generations.
To sum it up: fewer people are paying in, more people are drawing out, and they’re drawing for longer. That’s why the program is running out of reserves.
Once the trust fund is depleted, Social Security won’t disappear, but it will only be able to pay out what it collects in real time, which by today’s calculations will be 77% of what’s been promised unless Congress steps in5.
What Reforms Are Being Proposed?
As we get deeper into the 2025 policymakers are starting to propose solutions. Here are some of the most frequently mentioned. I’ll try and offer my opinion on each:
1. Raising the Full Retirement Age
Currently 67 for those born after 1960. Some proposals suggest pushing it to 68, 69, or even 70. This would reduce how long they have to pay out and future obligations but mostly affects younger workers, not current retirees.
2. Lifting the Payroll Tax Cap
As of 2025, only the first $176,100 of a worker’s wages are subject to the 12.4% Social Security payroll tax. Earnings above that aren’t taxed for Social Security at all.
One proposal is to raise that income cap or even reinstate the tax on earnings above a certain high-income threshold—say, over $250,000. Some versions of the idea go a step further and suggest a progressive payroll tax, where higher incomes are taxed at higher rates.
While this change would generate significant revenue for the system, it’s also highly politically sensitive, as it would affect higher earners who currently stop paying the tax once they reach the cap. Especially considering the proposal for means testing.
3. Raising Payroll Tax Rates
The current combined tax is 12.4% (split evenly between employees and employers). A gradual increase to 13% or higher is also being discussed as a way to extend solvency.
4. Means Testing
Under this idea, high-income retirees would receive reduced or no benefits. This could change Social Security from a universal benefit to one that’s more “needs based”. Imagine paying more during your working years and then being told you make too much to receive any benefits…
5. Immigration Reform
Roughly 11 million undocumented immigrants currently live in the U.S., many of whom don’t contribute to Social Security. Legalizing their status and bringing them into the formal tax system could widen the contributor base.
Realistically, no single fix will be enough. Lawmakers will likely need to combine several of these measures, and if history tells us anything, they’ll probably wait until the last possible moment to act.
So where does this leave us?
Deciding when to take Social Security is one of the biggest retirement decisions you'll make. You can start as early as age 62, or wait as late as age 70. The longer you wait, the larger your monthly benefit, but the fewer years you receive it. In fact, you can currently expect a roughly 8% growth in the amount you’d receive for every year you wait which means the difference between taking it as 62 and 70 can be nearly double7.
What’s the breakeven point?
The break-even point, is where the total lifetime benefits of waiting to 70 catch up to taking it early at 62. For most that is around age 828. If you have health concerns or family longevity is low, starting earlier might make more sense.
Could Potential Benefit Cuts Affect When You Should Claim?
This is where it gets a little complicated. As we’ve covered, if Congress doesn’t act, Social Security is projected to reduce benefits by about 23% starting in 2033, because the trust fund will be depleted, and the program will rely solely on incoming payroll taxes.
That might lead some people to think, “Maybe I should start taking benefits early, just in case.” Which isn’t the worst idea in my opinion, but here’s the catch. Benefit cuts may apply to everyone, in which case they may affect you whether you’ve already started collecting or not. Although, I can see the argument in trying to get a few years under you belt of “normal” benefits before they pull the rug out from under us.
I think it’s important to clearly state that when people say Social Security is going to run out of money, that it doesn’t mean you won’t receive any benefits. The reality is that they will only be able to pay out what they take in which as we’ve discussed is projected to be 77% of what they’ve promised.
I’ll be keeping an eye on these developments as things progress over the next few years and keeping you updated as usual. And as always, if you’d like to talk through how this may impact your own plan, I’m happy to have that conversation.
If you’ve only recently joined my email list, you’ve missed out on many insights and updates that I've been sharing each week. Be sure to visit my blog to explore past content that you might find valuable.
Enjoy your weekend,
Jeremy Raffer, MBA
Director & Wealth Manager
Author “Financial Planning for Widows”
m. 201-747-2705
w. rafferwealthmanagement.com
e. [email protected]
Steward Partners
115 W. Century Rd, Suite 145
Paramus, NJ 07652
1 https://www.ssa.gov/history/ratios.html
2 https://www.ssa.gov/policy/docs/chartbooks/fast_facts/2024/fast_facts24.html
3 https://www.ssa.gov/OACT/TR/TR02/lr5A3-h.html
4 https://www.cdc.gov/nchs/products/databriefs/db492.htm
5 https://www.ssa.gov/OACT/TR/2024/tr2024.pdf
6 https://www.ssa.gov/benefits/retirement/planner/maxtax.html
7 https://www.ssa.gov/oact/quickcalc/early_late.html
8 https://www.ssa.gov/OACT/quickcalc/early_late.html
9 https://www.ssa.gov/oact/trsum
10 https://www.ssa.gov/oact/progdata/assets.html
The views expressed herein are those of the author and do not necessarily reflect the views of Steward Partners or its affiliates. All opinions are subject to change without notice. Neither the information provided nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Past performance is no guarantee of future results.
AdTrax 7786571.1 Exp 3/26