If Social Security is part of your retirement plan, the headlines can be unsettling. The program’s trust funds are running down, Congress has not agreed on a solution, and future benefits may eventually be lower than the amounts shown on today’s Social Security statements.
That uncertainty can make it tempting to leave Social Security out of the plan entirely and treat anything you eventually receive as a bonus. While that may sound conservative, it does not reflect current projections. Social Security is not projected to disappear when its trust fund reserves are depleted. Workers and employers will continue paying Social Security payroll taxes, and those revenues will continue funding benefits. The issue is whether those ongoing revenues will be sufficient to pay all benefits promised under current law.
The 2026 Social Security Trustees Report projects that the Old-Age and Survivors Insurance (OASI) Trust Fund, which pays retirement and survivor benefits, will be able to pay full scheduled benefits until the fourth quarter of 2032. After the reserves are depleted, continuing program income is projected to cover about 78% of scheduled benefits. That figure is often described as a potential 22% cut in benefits. It is a useful way to understand the size of the funding gap, but it does not mean every retiree is scheduled to wake up in 2032 with a check that is exactly 22% smaller.
What Trust Fund Depletion Really Means
Social Security is financed primarily through payroll taxes. For many years, the program collected more than it needed to pay current benefits, and the excess accumulated in its trust funds. Now that current revenues are no longer sufficient to cover scheduled benefits, those reserves are helping make up the difference. Once the OASI reserves are depleted, payroll taxes would continue to arrive, but those revenues would no longer be sufficient to pay scheduled benefits in full. Under current projections, the share of scheduled benefits that could be supported by ongoing revenues would gradually decline, reaching about 62% by 2100.
It helps to keep in mind the difference between scheduled and payable benefits. Scheduled benefits are the amounts provided under the Social Security benefit formula in current law. Payable benefits reflect what the program can pay from the resources available to it. For as long as the trust fund has sufficient reserves, those amounts are effectively the same. After depletion, they may not be. Current law does not lay out a simple process for handling that situation. Beneficiaries would still be entitled to their scheduled benefits, but the Social Security Administration may lack sufficient resources to pay all benefits on time and in full.
To estimate the financial consequences of trust fund exhaustion, the Congressional Budget Office models a payable-benefits scenario in which payments are limited to the resources available. That type of analysis is useful for retirement planning because it allows us to estimate the financial impact, even though the eventual administrative and legislative outcome remains unknown.
What a Benefit Reduction Could Mean for a Household
A projected 22% funding gap sounds significant, but the percentage by itself says very little about how much it would affect a particular retirement plan.
Assume that a married couple is expecting $5,500 per month from Social Security, or $66,000 per year. If only 78% of those scheduled benefits were payable, their annual Social Security income would fall to about $51,480. That leaves $14,520 per year that would need to come from another source. Assume the couple expects to spend $100,000 per year in retirement. With their full scheduled Social Security benefits, they would need $34,000 from their portfolio. If Social Security falls to 78%, the portfolio would need to provide $48,520. Whether that difference is manageable depends on the rest of the household balance sheet.
For a couple with a $3 million portfolio, the additional $14,520 represents less than 0.5% of their assets. They may not need to change their spending at all. The effect could simply show up later as a somewhat smaller portfolio or a reduced legacy.
For a couple with a $500,000 portfolio, the same $14,520 represents nearly 3% of starting assets before accounting for the withdrawals they already expected to make. A reduction of that size could materially affect how much they can spend, how long their assets may last, or how much investment risk they can comfortably take.
The Social Security reduction is identical in both cases, but the retirement consequences differ significantly. Portfolio size, pension income, spending flexibility, longevity, asset allocation, and overall funded status all influence how much pressure a lower benefit would place on the plan. For some retirees, lower Social Security benefits may have little effect on lifestyle and primarily reduce the amount eventually left to heirs. For others, Social Security provides a much larger share of the income needed to cover regular expenses, making the same reduction far more consequential.
Assuming No Social Security Can Be Too Conservative
Some retirees prefer to exclude Social Security from their financial plans altogether. That creates a demanding stress test, but it can also understate the income they are reasonably likely to receive. The Trustees do not project that Social Security will stop paying benefits when the trust fund is depleted. Instead, they report that ongoing revenues will no longer be sufficient to pay all scheduled benefits. Assuming a complete loss of Social Security therefore reflects a much more severe outcome than current projections suggest.
That assumption can influence real retirement decisions. A household may choose to work longer, save more, reduce spending, or postpone goals that the plan could otherwise support. If Social Security ultimately pays substantially more than assumed, the household may simply end up with a larger estate rather than enjoying more of its resources during retirement.
A conservative planning assumption should account for uncertainty without automatically removing a significant source of expected income.
The Risk Looks Different Depending on Your Age
The potential impact of Social Security reform will also vary depending on age and how any changes are structured. Someone already receiving benefits has a much shorter planning horizon than a younger worker who may not begin collecting Social Security for several decades.
The 2026 Trustees projections illustrate the difference. OASI income is projected to cover about 78% of scheduled benefits when reserves are depleted in 2032, but only about 62% by 2100 if no changes are made.
That does not mean younger workers should assume they will receive only 62% of their scheduled benefits. Congress has decades to change taxes, benefits, retirement ages, or other features of the program, and the economic and demographic assumptions behind the projections will continue to evolve.
For retirees and those close to retirement, it may be more useful to test whether the plan can accommodate a meaningful reduction in benefits during retirement. For younger workers, there is greater uncertainty around both the amount of future benefits and the rules that will govern them. For someone decades from retirement, choosing one precise percentage today can suggest a level of certainty that simply does not exist.
Congress Has Several Ways to Address the Shortfall
The projected reduction in payable benefits reflects what the current financing structure could support if Congress allowed the trust fund to reach depletion without making changes. Lawmakers have several ways to improve the system’s finances. Congress could raise payroll tax rates, increase the amount of earnings subject to Social Security taxes, modify future benefits, change retirement ages, dedicate revenue from other sources, or combine several approaches.
Each approach spreads the cost differently. Higher payroll tax rates would increase contributions from workers and employers, while changes to benefit formulas could affect current or future beneficiaries. Raising the retirement age would shift more of the adjustment toward future retirees, while increasing the taxable wage base could place more of the cost on higher earners and their employers. Timing also matters since reforms made years before trust fund depletion can be phased in gradually and spread across more workers and beneficiaries. Waiting until the reserves are nearly exhausted would leave less room for gradual adjustments and could require larger changes over a shorter period.
For someone building a retirement plan today, there is no reliable way to know which combination Congress will eventually choose. That makes it more useful to prepare for a range of reasonable outcomes than to build the plan around one legislative forecast.
Planning for More Than One Outcome
A retirement plan does not need to rely on a single Social Security assumption. Using the benefits scheduled under current law can provide a reasonable starting point. From there, the plan can be tested using a lower benefit, such as 80% of the scheduled amount.
For a well-funded household, lower Social Security benefits may lead to somewhat higher portfolio withdrawals or a smaller legacy without requiring meaningful changes to spending. For another household, the same reduction may expose a more significant weakness in the plan. If the retirement strategy depends on receiving every dollar of scheduled Social Security, there may be value in addressing that risk while there is still time to adjust. Additional savings, lower spending, a later retirement date, revisiting the Social Security claiming strategy may improve the plan’s ability to absorb future changes.
Social Security’s current financing structure cannot support scheduled benefits indefinitely, but that does not mean the program is expected to disappear. The uncertainty lies in how lawmakers will eventually close the gap and how much of the adjustment will fall on workers, retirees, or taxpayers. The useful planning exercise is not trying to guess exactly what Congress will do. It is understanding how dependent your retirement is on receiving Social Security exactly as promised and whether the rest of your plan can absorb a less favorable outcome.
Want to learn more? Listen to Episode 242 of the Retire With Style Podcast.
