On August 31, 2021, the Social Security Board of Trustees released its annual report, which included the latest projection for the Old-Age and Survivors Insurance (OASI) Trust Fund. According to the report, if Congress does not act, the fund is projected to become depleted by 2033, a year sooner than the estimate provided in 2020. So, what does this mean for you?

As you probably know, Social Security is a pay-as-you-go program, which means that the people paying into Social Security now (employees and employers who pay FICA tax on the first $142,800 of an employee’s wages) are funding the benefits that are being paid out to those who are currently collecting Social Security benefits.

For most of Social Security’s history, the receipts have exceeded the expenditures, especially during the peak earning years of the “baby boom generation”. As a result, the excess of receipts over expenditures accumulated in what is known as the “OASI Trust Fund”. The trust fund is currently valued at approximately $2.8 trillion.

But now, the receipts are no longer adequate to cover the benefits being paid out. The primary factor driving the shortfall has been the retirement of the very “baby boomers” who had previously funded the Social Security program so generously for decades. Plus, the Covid-19 pandemic has only accelerated the rate of retirement among baby boomers.

To fund the shortfall, the program will “tap” the OASI Trust Fund. On its current course, the $2.8 trillion trust fund is projected to sustain the program until 2033. After that point, the program will only be able to pay 76% of the benefits currently being paid out (from those currently paying into the system).

However, that is the projected course of events if NO modifications are made. In reality, Congress has several policy levers that they could utilize to shore up the program’s solvency, including increasing the Social Security wage base, modifying the ages at which benefits can be collected, or increasing the FICA tax rate. Only minor changes to any of these factors would be necessary to protect the Social Security benefits of those currently collecting benefits or approaching retirement age.

Therefore, as of right now, we do not recommend making any changes to your Social Security collection strategy due to the possibility that your benefits will not be available when you go to collect. However, we will continue to monitor the situation and incorporate these uncertainties into your long-term financial plan.