Social Security is running short on money: What happens to your benefits if the trust fund runs dry?

Mass. — A financial lifeline for tens of millions of Americans is in trouble.

The Social Security Trust Fund is running out of money faster than expected.

If the situation isn’t fixed, the pain and impact will be felt not only by retirees, but by workers of all ages.

In Brookline’s Coolidge Corner, one man told Boston 25 News that he always imagined this was going to become a problem “which is to say that policymakers would reckon with it when the crisis was too profound to ignore anymore.”

Josh Stillwagon, Ph.D., chair of the economics department at Babson College in Wellesley, said there is no easy solution for this situation.

“There’s a fiscal shock that’s going to happen.”

That shock is looming because the Social Security Trust Fund is perched on a financial cliff.

That fund covers the difference between what is collected from active workers and the benefits that are paid out to retirees and people on disability.

The gap between collections and distributions is growing.

Stillwagon explained, “after 2032, without a change in law, they could only distribute what they’re collecting from workers today in Social Security tax. But that would amount to about a 22% reduction in how much the average retiree is receiving.”

Another man in Coolidge Corner said, “I believe it will be devastating for some people”.

When asked how worried people should be about this potential cut, Stillwagon said, “About half of retirees are entirely dependent on Social Security income for their spending, so a 22% reduction is quite significant. I’m talking about for the average retiree, something like $700 a month.”

David Shapiro, regional director of wealth for Johnson Brunetti in Needham, said his clients are pretty concerned about the situation.

He believes people of all ages will be facing new expectations for the federal entitlement program.

“I think about my children. My boys are 20 and 22. The likelihood of them having Social Security at least in the current format is not very high. So, depending on your age and depending on your level of assets, ultimately, you have to figure out a way to create a paycheck in those parameters.”

Shapiro thinks workers close to retirement will probably be OK, but those even just a few years younger might need to rethink their plans.

“The way we are designing financial plans is making sure it works without Social Security, and if it’s in there in some capacity, it’s just going to be extra but not dependent.”

He added, “Congress is going to have to make some changes.”

“There are really two solutions,” said Stillwagon. “You can raise revenue, raise taxes on someone, or you can lower the benefits that retirees, or at least future retirees, will receive.”

Raising revenue might mean adjusting the cap on Social Security taxes to get high-income workers to pay more.

Currently, the tax is only collected on the first $184,000 a person earns.

Senator Elizabeth Warren is part of a bipartisan proposal to lift the cap.

They estimate that action could generate three trillion dollars over ten years.

“You’d still have to do other things as well,” Stillwagon said. “You could adjust benefits. You could raise the retirement age.”

The situation might sound urgent, but there is not a lot of confidence it can be addressed in a highly polarized political environment.

One of the Brookline residents said, “I think they have other things on their minds. This is not a pressing concern for them, but for those who depend on it, it is.”

When asked if the situation is a mess, Stillwagon said, “It’s a problem they’ve kicked down the can down the road on for a while, and the longer you delay, the more painful and sudden the changes will be.”

Another trend making matters worse is the increased number of 62-year-olds who are signing up for benefits early, even though they’ll receive a smaller amount than if they waited.

Some people believe it’s better to get something guaranteed, rather than waiting to see how this all plays out.

In general, financial planners don’t suggest this strategy and say it’s best to get professional advice before making any decisions.

This is a developing story. Check back for updates as more information becomes available.

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