The CBO Just Moved Up the Social Security Insolvency Date. Here's What Retirees Need to Know Now.

Check out these facts from the Social Security Administration: “Social Security benefits represent about 31% of the income of people over age 65.” And: “Among Social Security beneficiaries age 65 and older, 39% of men and 44% of women receive 50% or more of their income from Social Security.”

Clearly, Social Security is a vital program. Indeed, according to the Center on Budget and Policy Priorities, as of 2022, fully 39% of adults 65 and older would be in poverty without it. Wow.

There’s trouble ahead

As important as Social Security is, it’s also in trouble — and according to a recent report from the Congressional Budget Office (CBO), its troubles have recently gotten a little worse.

The way Social Security works is that it takes in money via taxes on workers’ incomes and then uses that money to pay retired beneficiaries. That system worked really well for a long time, because there were many more workers than retirees. So the program actually ran a surplus each year.

But as people have been living longer lately and also often retiring earlier, the balance between incoming and outgoing cash flows has changed. Social Security’s surplus is running dry.

Check out how the ratio of workers to Social Security beneficiaries has shrunk over time:

Source: Social Security Administration.
*projected, in the 2024 Social Security Trustees report
**projected, in the 2025 Social Security Trustees report

The Congressional Budget Office says…

So what’s the CBO saying that’s so alarming? Check it out: “As required by law, the Congressional Budget Office’s baseline projections reflect the assumption that Social Security will pay benefits as scheduled under current law regardless of the status of the program’s trust funds. In those baseline projections, the balance of the Old-Age and Survivors Insurance (OASI) Trust Fund is exhausted (that is, reaches zero) in fiscal year 2032.”

That’s one year sooner than the Social Security Trustees report estimated last year.

Moreover, the CBO estimates that for outflows to match inflows, in the period from 2032 to 2036, there would likely have to be a reduction in benefits of 28% per year. So a $2,000 benefit might end up being a $1,440 one. That’s a big difference.

Last year, the CBO projected a 24% cut, and the Social Security Trustees projected a 23% one. Things are changing for the worse, it seems.

Note, too, that while these cuts are very significant, they’re not cuts of 100%, as some headlines seem to suggest. Social Security is not running out of money — it’s just on a path to not collect as much as it needs.

Don’t lose hope

It’s a bad and frightening situation, but it’s not hopeless. Because Congress can fix and even strengthen Social Security — if it wants to. (And if you let your representatives know your thoughts, that might help.)

There are multiple ways to fix Social Security. For example, the earnings cap, the maximum amount of earnings that gets taxed for Social Security, is $184,500 for 2026, and it gets updated annually. So someone who earns $1,184,500 pays as much into Social Security as someone who earns $184,500. If that cap were raised significantly, or if all of everyone’s earnings were taxed, that would drive a lot more money into Social Security’s coffers.

Other suggested fixes include raising the tax on workers by a little, and/or raising the full retirement age — the age at which you can start collecting the full benefits to which you’re entitled, based on your earnings — from 67 (for most people today) to as much as 70.

What should retirees and preretirees do?

If you’re retiring soon and you’re worried about this, there are some actions you might take, such as:

• Hope for the best, but brace for the worst. Start thinking about how you might spend less and perhaps bring in more income.
• If you’re working, consider working for a few more years than you’d planned to, in order to make and save more money.
• If you’re retired, consider taking on a side gig for a while, if that’s possible. You might, for example, make and sell things, give music or language lessons, get a part-time job, or even babysit.
• Examine your stock portfolio and see if any adjustments make sense, such as shifting more of it into dividend-paying stocks that can generate some income. You might look into fixed annuities, as well.
• Consider consulting a financial advisor, as they may have some effective strategies for you.

Also, keep an eye out for more developments in the Social Security world — because they’re likely to affect you, either now or later.