The Social Security trust fund has decreased by $400 billion since 2017: When will the reserves run out?

The Social Security trust fund peaked at around $2.8 trillion in 2017. Since then, it has been depleted at an ever-faster rate dropping $400 billion, with over half of that in the last year alone. The findings from the latest report by Social Security’s trustees, released earlier this month, show that the date of insolvency is still on track to come sometime in late 2032 or early 2033.

The Social Security trust funds are running out of money thanks in part to demographic shifts, resulting in more money being paid out than being paid in. The number of people paying into the system has shrunk from 42 per beneficiary in 1945 to less than three nowadays as the population ages and the birthrate falls.

Social Security needs a fix to save trust funds

If the current forecast holds true, then lawmakers on Capitol Hill have roughly six years to hammer out how they will salvage the Social Security program to ensure that beneficiaries don’t see their payments cut. Were the trust funds to dry up, then benefits could see a 23% haircut, as the Social Security Administration would only be able to use money that it collects from payroll taxes to cover its obligations.

Payments would shrink even more the longer that there is no solution to shore up the program. Kevin Lum, a certified financial planner who worked in Washington D.C., feels confident that Congress will find a solution before the clock runs out. And even if they don’t, he thinks the situation will only be temporary and the fix will be made retroactive.

Lum envisions an agreement among lawmakers along the lines of the bipartisan deal reached in 1983 that saved Social Security from insolvency with little time to spare. This would involve pulling a combination of the four levers they have at their disposal to fix the program.

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