6 Things the New Social Security Trustees' Report Means if You’re Living on Benefits Alone

If you're retired and receiving Social Security benefits for seniors, you need to pay attention to the most recent Social Security Trustees Report.

The report was released in June, and it contains a few key pieces of information that could affect your finances over the long term.

In particular, there are six key things every retiree must know in order to understand what's happening with their benefits now and in the future, as well as what risks they face because of Social Security's financial problems.

1. There's currently enough money to pay full benefits

The first key thing to know is that Social Security is not out of money, and the trust fund is not depleted yet.

While the report serves as a strong warning that financial problems are brewing, retirees are currently safe from their benefits declining right now.

2. Automatic cuts are going to happen if Congress doesn't act

The second big thing to be aware of, though, is that automatic cuts are going to happen if lawmakers don't take some type of action.

Under current law, Social Security only pays benefits out of revenue the program collects and out of the trust fund. It can't just borrow from the general fund to pay retirees. So when the trust fund runs dry, Social Security can't keep paying all that's promised, as there won't be enough money to do so.

Congress could take a number of steps to shore up the program's finances, including raising revenue or cutting benefits. While each approach has pros and cons and some options are controversial, the fact is that Congress does have time to act but needs to do so soon, as the longer lawmakers wait, the harder it becomes to solve the problem.

3. There are two possible timelines for when cuts could occur

Since Social Security can't borrow, if the trust fund is depleted, Social Security would only be able to pay benefits out of the revenue that is being collected. There is not enough revenue to pay all that is promised.

There are two different dates for when the trust fund is expected to run dry and automatic benefit cuts could occur, since there won't be enough money for 100% payments.

• The Old-Age and Survivors Insurance (OASI) Trust Fund, the fund set aside for retirement and survivor benefits, is projected to cover 100% of scheduled payouts through the fourth quarter of 2032, a quarter sooner than last year's estimate.
• If the OASI Trust Fund is combined with the Disability Insurance (DI) Trust Fund, 100% of benefits could be paid until 2034.

The trust funds cannot currently be combined by law, but it is widely assumed that lawmakers are going to change that to prolong Social Security's solvency.

If no change is made and the trust fund runs out in 2032, Social Security would be able to pay 78% of scheduled benefits. If the trust funds are combined, when the trust fund runs out in 2034, it would only be able to pay 83% of promised benefits. To put the scale of the problem in context, Social Security is projected to spend $3.8 trillion more than it collects over the next decade, and the 75-year funding gap reaches roughly $31 trillion in present value, according to SSA actuarial estimates.

4. Social Security is not going bankrupt

One of the most common misconceptions about Social Security is that it is going to be bankrupt, but the reality is that going broke and having no money is not possible under the current funding mechanism. Even if the trust fund is depleted, Social Security won't be bankrupt.

Social Security collects revenue from workers as they work and pay payroll taxes. Employees currently pay 6.2% of their pay in Social Security taxes, and employers match that for a total payment of 12.40%.

Current beneficiaries with provisional incomes above $25,000 for single filers and $32,000 for married joint filers also pay tax on part of their benefits.

This money would continue to come in and provide funds to pay the majority of promised benefits indefinitely.

5. Future retirees face greater risk

While the timeline for the trust fund running dry is short, those who face the greatest risk are future retirees. Lawmakers are very unlikely to let current retirees take a huge hit to benefits, but reforms could affect younger workers.

When lawmakers reformed Social Security in the 1980s, they raised the full retirement age from 65 to 67 but phased in the change slowly. The transition was not completed until 2022, when the first group affected by the full increase began becoming eligible for retirement benefits.

Any modifications to shore up Social Security would, most likely, once again impact people who are many years away from retirement and less likely to feel the immediate effects in a way that would affect their voting habits.

6. Demographic trends are making Social Security's financial situation worse

Finally, the last thing to note from the report is that demographic changes, including an aging population and declining fertility rates, are the reason why Social Security's financial situation is getting worse.

Fewer immigrants paying into the system is also affecting future projections as well.

These demographic shifts aren't something that is able to be changed, so lawmakers are going to need to make other modifications to Social Security to prevent the automatic cuts from occurring.

Bottom line

If you want to make sure you're on track for retirement in the future, it's more important than ever to save and invest because of the uncertainty Social Security is facing.

Seniors who are already retired can't necessarily save more now, and they have plenty to worry about in the most recent report, as benefit cuts are coming quickly. They may need to prepare for how they'll adjust their budgets if cuts happen.

Ultimately, though, the reality is that lawmakers need to act to prevent a big budget cut that many retirees can't absorb, and seniors should keep this in mind as they make decisions about their financial future.