The Lead

When Is Social Security Going Bankrupt?

Hint: This is a trick question

by Marcia Mantell, RMA®

Ms. Mantell is the founder and president of Mantell Retirement Consulting, Inc., a retirement business development, marketing & communications, and education company supporting the financial services industry, advisors, and their clients. She’s the author of “What’s the Deal with Retirement Planning for Women,” “What’s the Deal with Social Security for Women,” “Cookin’ Up Your Retirement Plan,” and blogs at

When the Social Security Trustees issued the 2022 state-of-the-program report on March 30th, it took all of 20 minutes for bombastic headlines to appear. In huge font, headlines read along this line: Social Security Trust Fund Going Bankrupt a Year Earlier, in 2033.

The speed at which hysteria spreads is impressive these days. But the fact that there is no real news here should cause every financial advisor’s hair to catch on fire.

Impact of Misinformation on Financial Advisors

Because of the concern spread by the headlines, you must once again ask clients to take a leap of faith—to trust Social Security will be here for the long haul. Or talk clients off the ledge and rerun retirement income scenarios. You’re again calming the fears of clients in every phase of retirement.

Thanks to misinformation and misunderstanding of the law, clients are once again gravely concerned that a key source of income for their retirement years is vanishing. And many are poised to make poor decisions.

Financial advisors are already stretched thin focusing on investment and income strategies for each client. Current economic gyrations and market volatility give you enough angst to deal with each day. Now, because of nothing more than sensational headlines wreaking havoc, you’re diverting time and energy to deal with an imaginary situation.

There is no bankruptcy in the making. The Trust Fund will not be depleted. Your oldest clients will not be living on the streets in ten years.

How can you help clients understand what is really going on with all this chaos?

First, Let’s Understand the “Trust Fund”

Social Security is a complex system. To start, it’s made up of two separate Trust Funds:

  • OASI – the original retirement account for Old Age and Survivors Insurance
  • DI – the Disability Trust Fund pays benefits to disabled workers and dependents

Retirement benefits are paid from OASI, which is essentially a gigantic checking account. It accepts inflows from FICA taxes and other sources, and pays out benefits to retirees, their qualifying dependents, and surviving spouses and children. Social Security’s Trust Fund is designed as a self-financing framework.

At the end of the month, if there are any dollars left unspent, they are moved into a separate account within the Trust Fund called the Asset Reserve Account.

These surplus dollars are invested in interest-bearing US government securities and that interest flows into the Trust Fund. In addition, taxes on benefits are paid into the Trust Fund.

Second, Look Closely at Inflows and Outflows

The Trust Fund is fueled by FICA taxes collected on the payrolls of some 181 million workers. Total inflows in 2022 were a staggering $1.056 Trillion:

  • FICA taxes from payroll = $945.9 Billion, or 89.6% of all incoming dollars
  • Interest on investments = $63.5 Billion, or 6% of inflows
  • Taxation of benefits = $47.1 Billion, or 4.5%

These inflows are not investment dollars. As inflows pour in each day, outflows pay retirees and others on the second, third, and fourth Wednesdays of the month. In 2022, total outflows reached $1.097 Trillion. Three distinct obligations were paid from the Trust Fund:

  • $1.088 Trillion went to retirees and dependents
  • $5.3 Billion was an interchange with the Railroad Retirement System
  • $4.0 Billion was paid to administer the program

At the end of 2022, the Trust Fund in its entirety paid out $1.097T versus inflows of $1.056T, creating a shortfall.
Thankfully, the sidecar Asset Reserve account was readily available to make up the shortfall. With the “rainy-day” fund in place, no beneficiary was shortchanged. Benefits were not delayed. Armageddon did not arrive on the doorstep.

Then, Talk About the Purpose of the Reserve Account

Yet, there is indeed a problem on the horizon. The Reserve account stands at $2.71 Trillion at the end of 2022. It is a planned safety net, or gap filler, that allows retired clients to continuously receive full benefits.

This “reserve” account acts like a savings account. Since 1983, it has been accumulating overflow dollars from the Trust Fund. Its purpose was planned forty years ago. The lawmakers knew the bulk of the Baby Boomers would be claiming their well-earned retirement benefits by the early 2020’s, and inflows alone would not be sufficient to meet obligations.

The shortfalls were planned and expected. But it’s not sustainable to pay out more than cash inflows from FICA and taxes on benefits.

Thanks to misinformation and misunderstanding of the law, clients are once again gravely concerned that a key source of income for their retirement years is vanishing. And many are poised to make poor decisions...

So, is it that the Reserve Account is going bankrupt? No. No part of the Social Security Trust Fund is going bankrupt. Bankruptcy is a legal process by which individuals or corporations ask the courts for an arrangement to pay back loans and other unsecured debt. No part of Social Security carries unsecured debt.

The very real concern, however, is that the Reserve Account’s cash is being depleted. There is no surplus at the end of the month from the Trust Fund to fuel savings. When all the cash is gone from the reserve account, it’s no different than when your clients spend down a cash account. Its balance falls to $0.

Importantly, once the reserve account is emptied, the Trust Fund will continue. Payroll taxes and taxes on benefits will continue to flow in. The issue is not one of bankruptcy. Rather, it is that retiree’s benefits will not be paid out at 100%. Inflows will be sufficient to cover only 77% of benefits.

That’s the unacceptable problem sitting in Congress today. Because Social Security is a law, only Congress can implement changes. Only the 535 Representatives and Senators can implement solutions to refuel the Reserve Account or find other sources of inflows such that 100% of benefits continue to be paid.

Last, Explain the Reserve Account Problem Is Well-Known

This entire “bankruptcy” issue stems from inaction by the Congress. By doing nothing for the last 40 years to shore up Social Security or to address the shrinking Reserve account, older Americans are concerned their benefits will be dramatically cut in the next 10 years. And younger Americans throw up their hands believing they will have no social safety net at all.

In fairness, because Social Security is such a complex system, solutions are hard. But shouting from the rooftops that the entire bedrock of our retirement system is crumbling is irresponsible, uninformed, and downright unforgiveable.

We’ve seen this situation before. Forty-one years ago, in 1982, the reserve account nearly ran dry. Only then did the Congress make changes to address the changing dynamics affecting the complex system. In 1983 they announced sweeping changes. But those law changes were not designed to meet Social Security’s 75-year outlook.

In 1983, Congress knew they had kicked the can down the road part-way. Social Security’s Reserve Account would again be depleted in 2049, ten years short of the goal line.

  • By 1990, the depletion date had changed to 2041.
  • In 1996 and 1997, the depletion date had moved unfavorably to 2029.
  • Just before the great recession, the forecast jumped back to 2041 and 2042.
  • Since 2009, the forecasted date for the Reserve Account to be fully consumed has bounced between 2033 – 2037.

So, for the last 40 years, the people who controlled the fate of this program knew it was on shaky ground. The problems are not new. But the timeline has shortened significantly.

Helping Clients Make Sense of Lawmaking

Sadly, just breezing through the headlines these days paints a picture much more dire than factual. Many clients in their late 50s, early 60s may now be contemplating claiming Social Security retirement benefits sooner than planned or optimal. Keeping the faith about Social Security being there is a stretch for many.

Your challenge is to cut off any potential bad decision-making at the pass. Try these strategies with clients who are nearing decision time:

1.) Review the funding facts about Social Security. FICA funds nearly 90% of payouts.

2.) Explain how Congress solved the 1982 asset reserve depletion. They still have a 10-year runway to address the problem.

3.) Send the Trustees’ Report to clients who want more details.

4.) Suggest clients track the various proposals to fix Social Security from members of Congress.

5.) Proactively discuss areas of concern or bring in an expert who can present the facts, history, and candidly answer client questions.

Finally, build up client confidence by running updated retirement income plans and projections. And, stating clearly that Social Security cannot go “bankrupt.”


One response to “When Is Social Security Going Bankrupt?”

  1. J Heywood E Sloane says:

    The critical difference is Republicans today are nothing like those of 1982, let alone those who helped establish the system. Their intransigence, denial, one trick policy of cut taxes first and everything else later to balance books will be the death knell of more than just Social Security.