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Over the last several years, the news about Social Security's long-term health has gotten progressively worse. With nearly every passing year, the Social Security Administration's annual Trustees' Report has pulled forward the date when the Social Security Trust Funds are expected to run out of cash.

About a year has passed since the last report, which pegged the date at 2033, and the next is due soon. Still, a collapse date 20 years from now wouldn't seem so bad if it weren't for the fact that the trend suggests it probably won't stay that far away, as the chart below illustrates:
Trustee Report Year Estimated "Run Dry" Date
2012 2033
2011 2036
2010 2037
2009 2037
2008 2041
Source: Social Security Administration.

On top of that worrisome pattern, data published earlier this year by the Congressional Budget Office indicate that the Social Security Trust Funds' problems continue to get worse. A combination of higher disability claims, low interest rates, and stubbornly high unemployment have conspired to draw closer the date when the program's reserves will be exhausted.

Based on that, chances are strong that this year's Trustees' Report will pull the funds' expiration date even sooner.

Regardless of exactly when the projected date for the Trust Funds to run dry is, if nothing changes, those reserves are going to run out -- at which time, benefits will be cut.

What Happens to You When It Runs Out of Reserves?

The Social Security Trustees indicate that when the reserves are gone, incoming taxes will only be able to cover about 75 percent of the program's current promised benefits. Nobody is quite sure yet how that 75 percent will be distributed across beneficiaries, but chances are good that your benefits, along with everyone else's, will be affected by that shortfall.

The average monthly Social Security check to a retiree currently sits at $1,265.82. While everyone's situation varies, a 25 percent cut in those benefits translates to a substantial loss in income.

The table below shows just how big a kick in the pocketbook those cuts will be to typical beneficiaries:
Family Status Average Annual Benefit Benefit at 75% Annual Cut
Two retired workers $30,379.68 $22,784.76 $7,594.92
One retired worker, one spouse $22,743.00 $17,057.25 $5,685.75
One retired worker only $15,189.84 $11,392.38 $3,797.46
Source: Author calculations based on data from the Social Security Administration.

If you're a fairly young retiree now of around age 65, in 20 years, when the Trust Funds are currently projected to empty, you'll be 85. Will you be willing -- or even able -- to find a job to cover that shortfall?
And if you're in your mid-40s or younger now, all signs point to you never getting your anticipated full retirement benefit as long as Social Security remains on its current path.

What's Being Done to Stop the Slide?

As the years tick closer to the date the Trust Funds empty, it gets far tougher financially to shore up the system to prevent that collapse. Rght now, the only proposal getting serious consideration is President Obama's budget proposal to tie the increases in Social Security payments to the "Chained CPI," which would slow the rate that benefits grow in response to inflation.

By reducing the inflation-adjusted growth in the average Social Security check by an estimated $30 a month by 2023, the Chained CPI modification would reduce the program's net outflow of cash. But that would only cover about a quarter of the program's long-term shortfall. It's a little bit of pain over a long period of time that postpones, but doesn't stop, the Trust Funds' collapse and the eventual substantial cut in overall benefits as a result.

If it comes to pass, the Chained CPI change is expected to cut the growth in payments by somewhere in the neighborhood of around 0.1 percentage points to 0.3 percentage points per year. The table below shows what that would mean to a recipient getting today's average Social Security retiree payment, assuming 3 percent inflation calculated under the current method and a few different Chained CPI levels:
Year 3% Inflation 2.9% Chained CPI 2.8% Chained CPI 2.7% Chained CPI
2013 $1,265.82 $1,265.82 $1,265.82 $1,265.82
2014 $1,303.79 $1,302.53 $1,301.26 $1,300.00
2024 $1,752.19 $1,733.57 $1,715.13 $1,696.86
2034 $2,354.80 $2,307.25 $2,260.62 $2,214.89
2044 $3,164.65 $3,070.78 $2,979.60 $2,891.05
Source: Author's calculations. Assumes no reduction in payments after the Trust Funds empty.


One thing is becoming crystal clear -- you can expect to be on the hook to cover more of your retirement income needs on your own. That's true regardless of whether we'll face the reduction from the Chained CPI, the reduction from the emptying of the Social Security Trust Funds, or some combination of both.

For ideas on how to start covering for the shortfall:

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1548 Comments

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bharrison777

SS is not going to run out of money. There will just not be extra money coming into SS for the fools in Congrer and the white House to use to fund their favorite programs with. It has them scared to death.

May 04 2013 at 4:56 PM Report abuse rate up rate down Reply
rmh301

The author would have you believe that SS is a trust fund. It's not!!!! It's nothing more than a bookkeeping entry of the general fund. SS originally was a trust fund that would never run out. Guess who got their grubby little hands on it and transferred it over to the general fund?

Honestly people we really need to stop RE-electing the same people over and over again. Everyone loves their congressman. It's everywhere else's congressman that is the problem. Throw them all out ever 4-8 years is the ONLY way to fix what's wrong.

May 04 2013 at 2:38 PM Report abuse rate up rate down Reply
ddiribbons

If one has never worked and paid in to SS, he or she can still collect in three ways:
1. Widows can collect husbands SS
2. Elderly with no income can collect
3. People can collect under disability
The third reason is why millions fake their disabilities and fraudently collect SS while the government does nothing about it.

May 04 2013 at 12:42 PM Report abuse rate up rate down Reply
foxylynx

There are 32 TRILLIAN dollars in offshore accounts - go after these tax dodgers and claw back every penny they owe - then and only then can they bring up cutting ss.

May 04 2013 at 10:24 AM Report abuse rate up rate down Reply
2 replies to foxylynx's comment
hmarkwa

Another confused individual. That stat is how much $ all the rich people in the whole World have invested in low tax investments. That's not just a stat about how much $ rich US citizens owe from cheating on taxes.

May 04 2013 at 10:41 AM Report abuse rate up rate down Reply
ddiribbons

Most of those dollars belong to Washington politicians from kickbacks.

May 04 2013 at 12:35 PM Report abuse rate up rate down Reply
hmarkwa

Judging by the comments here, apparently most people don't actually even understand what's going on. They keep ignorantly posting about, "if the gov would just pay back the $ they stole from the trust fund everything would be fine". They don't seem to realize that's exactly what's been done now. The taxes coming in no longer cover the benefits going out, so the gov. is now making up the difference by paying back the extra money it had collected, when in the past more taxes were coming in than benefits were going out. That's the fake "trust fund" money. When the gov. finishes giving out all the money in the fake "trust fund", it will have paid out in benefits ALL the money it has ever collected in SS taxes. No one is being ripped off.

May 04 2013 at 10:22 AM Report abuse rate up rate down Reply
emsteksrv

Saw a handsome, young asian gentleman with a new BMW sign up his sari wearing mother and mother in law at the local SS office. Did they pay in?
SSI for addicts too messed up to work?
Disability for all?
We the sheeple let our work and our country be stolen by DC crooks. Now we pay.

May 04 2013 at 9:37 AM Report abuse +2 rate up rate down Reply
bilhee

Exactly what is the chained CPI????..II have no problem with reducing the amount of Social Security Benefits for all those receiving more than the minimum..or as a compromise..(something Congress apparently is unable to do) reduce the benefits AFTER the amount that you have contributed..and then increase them by the "chained CPI", which I still don't understand

May 04 2013 at 8:42 AM Report abuse +1 rate up rate down Reply
pacrep

Instead of the chained CPI let the government pay back the money they stole from the Social Security fund. The useles IOU's they put in place of the money don't spend very well. Did they not think taking all that money and never replacing it would not create a big problem.

May 04 2013 at 8:20 AM Report abuse +1 rate up rate down Reply
teerzac

LEAVE SOCIAL SECURITY ALONE AND IT WON'T DRY UP. THE GOVERNMENT NEEDS TO STOP SPENDING OUR SOCIAL SECURITY MONEY AND THEY NEVER PAY IT BACK. LEAVE OUR MONEY ALONE. WHAY PART OF THIS STATMENT DON'T YOU ALL UNDERSTAND.

May 04 2013 at 7:55 AM Report abuse +4 rate up rate down Reply
Winnie

If the government would quit stealingSS funds that belong to the people, it would not run dry because it is being paid into ever day.

May 04 2013 at 7:19 AM Report abuse +3 rate up rate down Reply