As we continue to wait for release of the 2025 Social Security Trustees Report from the Treasury Department, advisors and retirement industry experts are bracing for updated projections about the program’s long-term solvency and potential benefit shortfalls.
Last year, the Trustees dropped the report on May 6. As there is no scheduled release date, the 2025 report could come today or perhaps even 3 months from now.
While the Social Security Act requires that trustees’ reports for the Social Security and Medicare trust funds be issued annually, and no later than April 1 of each calendar year, that toothless deadline is usually missed. The 2023 report did beat it with a March 31 release, but prior to that, 2008 was the last year in which the statutory deadline had been met for the report’s release.
And it may be worse in first years of new presidential administrations. In 2021, the report was not issued until Aug. 31—more than 150 days past the “deadline.”
As uncertainty mounts around the future of Social Security with concerns potentially encouraging greater savings in workplace plans, retirement plan advisors are increasingly being asked to help clients understand what’s at risk and how to prepare.
The updated report—whenever it is released—will help answer these questions as well as whether or not the projected depletion date for the trust fund will move forward, back or stay the same, and what percentage of scheduled benefits will be payable upon insolvency were it to occur.
Bracing for new projections
While we wait for updated projections from the 2025 report, the 2024 Social Security Board of Trustees annual report on the financial status of the trust funds revealed that absent Congressional action, Social Security’s trust fund is on track to deplete its reserves by 2033. While Social Security will be able to pay 100% of total scheduled benefits until that time, from 2033 on only 79% of scheduled benefits will be payable.
As the nonpartisan Committee for a Responsible Federal Budget (CRFB) points out, Social Security has two trust funds that finance its different social insurance functions. The Old-Age and Survivors Insurance (OASI) trust fund pays monthly benefits to retired workers, their families, and some survivors of deceased workers. Workers can begin collecting retirement benefits between ages 62 and 70, though the full retirement age is 67.
Social Security’s Disability Insurance (SSDI) trust fund pays monthly benefits to workers with disabilities that prevent them from remaining in the workforce.
Both programs are funded through a 12.4% payroll tax, split between worker and employer, up to a maximum amount of wages. 10.6 percentage points go to the OASI trust fund and 1.8 percent to the SSDI trust fund.
Combined, CRFB says the two trust funds would be insolvent by 2035, and would require a 17% benefit cut at that time.
Not combined, a 2023 CRFB report found that the OASI trust fund would become insolvent in 2033. Upon insolvency, federal law mandates that the OASI trust fund can only spend in amounts equal to incoming trust fund revenue, which means that all 70 million (projected) retirees, dependents, and survivors—regardless of age, income, or need—would see their benefits cut by 23%.
For a typical dual-income couple retiring in 2033, CRFB estimated this would represent an immediate $17,400 cut in annual benefits and an immediate $13,100 cut for a typical single-income couple. That equates to a monthly cut of $1,450 for dual-income couples, or $1,092 for single-income couples.
While President Donald Trump has repeatedly stated an intention to eliminate the tax on Social Security, the current GOP tax bill trying to make its way through Congress does not currently include a provision to eliminate that tax.
Including that change in the bill would have violated a prohibition on making changes to Social Security through the so-called reconciliation process, a legislative procedure Republicans are relying on to pass the bill. Trying to do so would have run afoul of what is known as the Byrd rule, named after late West Virginia Sen. Robert Byrd that limits what can be included in reconciliation bills.
Instead, the House bill includes a new tax break for senior citizens: an extra $4,000 deduction for tax filers who are 65 and older. Called an “enhanced deduction for seniors,” it would lower taxes for the roughly 56 million people in the U.S. who are 65 or older. The deduction begins phasing out at a modified adjusted gross income of $75,000 for individuals and $150,000 for married couples filing jointly. To qualify for it, filers and their spouses, if filing jointly, must provide valid Social Security numbers. The deduction applies to fiscal years 2025 to 2028.
The Social Security Administration says currently about 40% of Social Security recipients—about 27 million people—pay federal income taxes on their benefits. Currently, up to 85% of Social Security benefits can be subject to federal income taxes, depending on total income.
One potential problem with Trump’s pledge to end the tax on Social Security benefits is that his administration hasn’t outlined how it would be paid for, and without a way to make up that lost revenue, eliminating it would drastically hasten Social Security’s pending insolvency. If it were to end without an offset, a recent estimate by CRFB found that the insolvency window would shrink to only six years.
Instead of 23% reduction in benefits in 2035 forecast by the Congressional Budget Office back in August 2024 (which would mean a $16,500 cut facing a typical couple retiring just before insolvency), Trump’s agenda being enacted would also bump it up to a 33% across-the-board cut to all benefits, according to the analysis released in October.
If enacted in 2024, a 33% benefit cut would have meant that the average 2024 monthly Social Security benefit check of $1,907 would have been reduced by $629 per month to $1,278.
Under CRFB’s central estimate, these policies would add about $2.3 trillion to Social Security’s cash deficit between FY 2026 and 2035, which is about 1.8% of current law taxable payroll once phased in. This includes $950 billion from ending the income taxation of Social Security benefits, about $900 billion from ending payroll taxes on tips and overtime pay, and roughly $400 billion from changes to tariffs and immigration.
Revenues generated from the taxation of Social Security benefits are earmarked for funding Social Security and Medicare benefits. The 2024 Social Security Trustees report estimated that the Social Security Trust Funds (retirement and disability) would receive about $939 billion in revenues paid by Social Security recipients over 10 years and represent roughly 5% of total program funding from 2024 through 2033.
SEE ALSO:
• Social Security Trust Funds will be Exhausted by FY 2034: CBO
• 9 Years Until Social Security Trust Fund Becomes Depleted
• Absent Action, Typical Couple Faces $17,400 Social Security Benefit Cut in 2033
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.