Is Social Security Facing Insolvency? What You Need to Know

In 2025, Social Security beneficiaries will see an increase in their payments, thanks to the cost-of-living adjustment (COLA).

While this raise will help in the short term, there are concerns about Social Security’s long-term financial health. Let’s break down the COLA update, Social Security’s future, and possible solutions to the program’s growing issues.

What is COLA and How Will It Affect Benefits in 2025?

Every year, Social Security benefits are adjusted to keep up with inflation. This adjustment, called COLA, is expected to be released on October 10 for 2025.

The increase will help seniors cope with rising costs of living. However, the exact amount is still unknown. While it will provide immediate relief, long-term concerns about the stability of Social Security remain.

Social Security’s Financial Problems

Social Security has been spending more money than it receives in revenue since 2021. It’s been covering the difference by using its trust funds, which are running low.

According to the Congressional Budget Office (CBO), the OASI (Old Age and Survivors Insurance) trust fund, which pays for retirement and survivor benefits, will be out of money by 2033.

This could lead to a 23% cut in benefits by 2035, which would significantly affect retirees’ quality of life.

For example, if the average monthly retirement benefit of $1,920 drops by 23%, it would be reduced to $1,478—an annual loss of about $5,300. Many seniors, especially those with limited savings or other income, would find this cut devastating.

What Can Be Done to Fix Social Security?

The good news is that the government has made changes in the past to avoid major cuts. For example, in the 1980s, changes were made to the Social Security program that kept benefits stable. These included:

• Raising the Full Retirement Age (FRA): This change meant that people who retired early received less money, while those who waited longer were rewarded with higher payments.
• Increasing Payroll Taxes: Workers pay a Social Security tax on their earnings, and this tax rate was raised during past changes. However, this meant workers had less money in their paychecks.
• Taxing Social Security Benefits: Some retirees pay taxes on their benefits, depending on their income. This made it harder for some to make ends meet.

Today, discussions about raising payroll taxes or cutting benefits are ongoing. The CBO estimates that raising payroll taxes by 4.3% or permanently cutting benefits by 24% are potential solutions, but a combination of methods might be the best way to avoid serious economic problems.

What Are the Risks of Inaction?

If no changes are made, Social Security’s problems could become much worse. If the trust funds run out, the 23% benefit cut could affect millions of Americans who depend on these payments.

The government will likely need to make tough decisions about how to balance the program’s finances.

While a COLA raise will help seniors in the short term, the future of Social Security looks uncertain unless action is taken.

It’s important for everyone, especially those who rely on these benefits, to stay informed about potential changes to the program.

A balanced approach, such as raising taxes slightly and adjusting benefit rules, may be necessary to secure Social Security’s future.