Is Social Security Really Running Out of Money? What Retirees Should Know

Social Security isn’t “running out,” despite what some headlines might suggest. The way the system is often portrayed can create unnecessary worry, but the reality is more nuanced—and more manageable—than it might seem at first glance.

Before we dig in, Winding Trail Financial Planning is a fee-only financial advisor serving retirees and those within a few years of retirement. For most retirees, Social Security is only one part of a larger retirement planning strategy⁠ that includes investments, taxes, withdrawal decisions, and long-term income needs.

To understand the current state of Social Security, it helps to think about how the system works in simple terms. Social Security primarily operates as a pay-as-you-go program.

This means that the payroll taxes you and other workers pay today are used to provide benefits for those who are currently retired. This setup has been in place since the program’s inception. Imagine it as a river flowing steadily; the taxes collected each year are like water flowing into the system to support retirees.

In addition to this steady flow, Social Security also has a trust fund that acts like a reservoir. For many years, the payroll taxes collected brought in more money than was needed to pay benefits.

This surplus was saved in the trust fund, creating a financial cushion. Think of this fund as a reservoir that fills up during times of surplus and can be drawn down when more water is needed downstream. Today, however, the situation has reversed. Benefits paid out to retirees now exceed the payroll taxes coming in, so the system has been drawing on the trust fund to cover the difference.

According to the 2026 Social Security Trustees Report, the Old-Age and Survivors Insurance Trust Fund is projected to be depleted in the fourth quarter of 2032. This timeline is what you often see in news stories and headlines, but it’s important to understand what it really means.

The depletion of the trust fund does not mean that Social Security will suddenly stop paying benefits. The system will still collect payroll taxes, and those taxes will continue to fund a significant portion of benefit payments.

Even if the trust fund runs dry, payroll taxes alone are expected to cover about 75 to 80 percent of scheduled benefits.

So, while there would be a shortfall, Social Security payments would not end abruptly. This distinction is crucial because it changes the conversation from one of crisis to one of adjustment.

The gap between incoming payroll taxes and scheduled benefits—the 20 to 25 percent shortfall—is certainly a challenge, but it’s not insurmountable. There are several policy options that lawmakers could consider to address this funding gap and ensure Social Security remains sustainable for the long term.

One possibility is gradually increasing payroll taxes by about two percentage points. This would mean a modest rise in the amount workers and employers pay into the system over time.

Another option is raising the wage cap on taxable income. Currently, only earnings up to a certain limit are subject to Social Security taxes. Increasing or eliminating this cap would mean higher earners contribute more, which would help close the funding gap.

Adjusting benefits for higher earners is another approach.

This could involve reducing benefits for those with the highest lifetime earnings or modifying the formula used to calculate benefits in a way that targets resources toward lower- and middle-income retirees. Additionally, gradually increasing the full retirement age could reflect longer life expectancies and the changing demographics of the workforce.

In reality, it’s likely that any solution will involve a combination of these approaches rather than a single fix. Policymakers will need to weigh the economic, social, and political impacts of various changes. The key point is that the challenges facing Social Security are not new, and there are tools available to address them.

The more important question isn’t whether Social Security will continue to exist—it almost certainly will—but how it will evolve over the coming years. Congress will need to make some difficult decisions to keep the program financially sound for future generations. Understanding this context can help you feel more confident in your long-term planning.

If you’re approaching retirement or already retired, it’s wise to consider how potential changes to Social Security might impact your income.

Staying informed about the program’s status and having a flexible financial plan can help you navigate any adjustments that may come. While headlines can be alarming, a clear-eyed view shows that Social Security remains a vital part of retirement income, supported by a system designed to adapt and endure.

What This Means for Your Retirement Plan

The takeaway is not that Social Security should be ignored, nor is it that you should assume benefits will disappear. A better approach is to plan with flexibility.

For many retirees, Social Security remains one of the most important sources of lifetime retirement income. It is inflation-adjusted, backed by ongoing payroll tax revenue, and designed to provide income for as long as you live. But that does not mean you should build your entire retirement plan around one assumption.

A thoughtful retirement plan should consider questions like:

• When should you claim Social Security?

• How much of your retirement income will depend on Social Security?

• What happens if future benefits are reduced, taxed differently, or adjusted for higher-income retirees?

• How do Social Security, pensions, portfolio withdrawals, Roth conversions, and taxes all fit together?

For Colorado retirees with pension income, such as Colorado PERA benefits⁠, Social Security claiming decisions should be viewed alongside pension elections, survivor benefits, and tax planning.

These decisions are connected. Claiming Social Security earlier or later can affect your cash flow, taxes, investment withdrawals, Medicare premiums, survivor benefits, and long-term retirement security.

If you are within a few years of retirement, this is a good time to review your plan before making an irreversible claiming decision.

Winding Trail Financial Planning is a fee-only financial advisor in Lafayette, Colorado. We help retirees and near-retirees coordinate Social Security, retirement income, tax planning, and investments so they can make informed decisions with more confidence.

If you are approaching retirement and want help thinking through your Social Security claiming strategy, retirement income plan, or tax picture, you can schedule an introductory call.

Dwight Dettloff, CFP®, CPA/PFS, RICP®

Social Security FAQs

Is Social Security running out of money?

No, Social Security is not expected to “run out” in the sense that payments would stop completely. Social Security is primarily funded by ongoing payroll taxes from workers and employers. Even if the trust fund reserves are depleted, payroll tax revenue would still continue coming into the system and could pay a significant portion of scheduled benefits.

When is the Social Security trust fund projected to be depleted?

According to the 2026 Social Security Trustees Report, the Old-Age and Survivors Insurance Trust Fund is projected to be depleted in the fourth quarter of 2032. If the Old-Age and Survivors Insurance and Disability Insurance trust funds are viewed together, the combined depletion date is projected to be 2034.

What happens if the Social Security trust fund is depleted?

If the trust fund is depleted and Congress does not make changes, Social Security would still collect payroll taxes. However, those taxes would not be enough to pay 100% of scheduled benefits. The 2026 Trustees Report projects that the Old-Age and Survivors Insurance Trust Fund would be able to pay about 78% of scheduled benefits at depletion.

Will Social Security benefits be cut?

Social Security benefits are not automatically disappearing, but future benefit reductions are possible if Congress does not address the funding shortfall. Lawmakers could also choose to increase revenue, adjust the benefit formula, raise the taxable wage base, change claiming rules, or use some combination of reforms to reduce or avoid benefit cuts.

Should I claim Social Security early because of the trust fund issue?

Not necessarily. Claiming early may make sense in some situations, especially if you have health concerns, limited savings, or an immediate income need. But claiming early also permanently reduces your monthly benefit. For many retirees, the decision should be based on life expectancy, survivor benefits, tax planning, portfolio withdrawals, and overall retirement income—not headlines alone.

Should I assume Social Security will not be there when I retire?

For most people, assuming Social Security will completely disappear is probably too pessimistic. A more realistic planning approach may be to test different scenarios, such as receiving full benefits, receiving a reduced benefit, or seeing tax or claiming-rule changes in the future.

How much of my retirement income should come from Social Security?

That depends on your savings, pension income, spending needs, tax situation, and retirement goals. Some retirees rely heavily on Social Security, while others use it as one piece of a broader income plan that includes portfolio withdrawals, pensions, rental income, or part-time work.

How can I protect my retirement plan from possible Social Security changes?

You can build flexibility into your retirement plan by saving enough outside of Social Security, managing withdrawals tax-efficiently, coordinating Roth conversions, keeping an appropriate investment allocation, and revisiting your claiming strategy before filing. The goal is not to predict every policy change, but to make sure your plan can adapt.