Social Security Trust Fund Depletion: What It Means for $2M to $8M Retirees
Episode 50
Social Security Trust Fund Depletion: What It Means for $2M to $8M Retirees
Published on Sept 2nd, 2026
Episode Summary
Episode 50 of Retirement Tax Matters reviews the numbers behind the latest Social Security Trust Fund report and what the possible projected 2032 reserve depletion means for retirees between $2M and $8M. Garrett Crawford, CFP® and Adam Reed walk through the report details, noting that while trust fund reserves are projected to run out in the fourth quarter of 2032, ongoing payroll tax revenues still are said to cover approximately 78% of scheduled benefits. The conversation addresses the common planning mistake of modeling Social Security at zero, which can artificially create a multi-million dollar portfolio gap and cause retirees to unnecessarily trade their time by working longer. Replacing an $80,000 inflation-adjusted income stream entirely out of savings requires a significant lump sum, whereas planning (for the conservative retiree) around a realistic 75% baseline keeps early retirement plans grounded in math rather than headlines. Garrett shares his opinion on potential Congressional action, explaining why legislative changes might favor payroll tax adjustments or age shifts and why that may be a more likely outcome than sudden across-the-board benefit cuts. Ultimately, using an annual tax-return-driven process allows retirees to stress test their multi-year drawdown plans, maintain perspective on media coverage, and make informed choices with their time and wealth.
Key Tax Planning Questions
Question 1: Will Social Security benefits be cut by 22% in 2032?
Political commentators who talk about the Social Security Trust Fund running out often overstate their ability to predict the future. When I came into the financial planning industry 13 years ago, there were already discussions about the trust fund eventually running dry. Over my career, I have watched the projected depletion date steadily move closer, with recent reports pointing to 2032.
At a national policy level, funding Social Security and Medicare presents a real structural challenge, especially given the $40 trillion national debt. However, it is important to remember how the program is actually funded. Social Security is primarily sustained through ongoing payroll taxes collected from active workers. Over the last two decades, tax policy changes and demographic shifts have reduced incoming tax revenues relative to the growing number of retirees drawing benefits. Because revenues are currently lower than total benefit payouts, the government has been dipping into the Social Security Trust Fund reserves to make up the difference.
The 2032 reserve depletion date is a real projection, but two key facts often get lost in the headlines. First, trust fund depletion does not mean Social Security goes to zero. Even if trust fund reserves hit zero in 2032 and Congress takes no action, ongoing payroll tax collections are still projected to cover approximately 78% of scheduled benefits. Allowing the program to lapse entirely would cause massive economic disruption, giving the federal government a strong incentive to maintain it.
Second, the closer we get to the 2032 timeline, the more likely it is that Congress will intervene. Potential adjustments could include raising payroll tax rates, adjusting the full retirement age for younger workers, or modifying benefit formulas to sustain the program.
For conservative retirees with portfolios between $2 million and $8 million, modeling a plan around receiving 75% to 78% of your scheduled benefit is a reasonable way to stress test your numbers. While nobody can predict exact legislative outcomes, assuming Social Security will disappear entirely is an extreme assumption that can lead to unnecessary retirement planning mistakes.
Question 2: How would a 25% Social Security cut affect a $5 million dollar portfolio for retirement?
A 25% reduction in Social Security benefits would create serious financial hardship for many Americans who depend on those checks to cover basic groceries and daily living expenses. However, for a high-net-worth retiree with a $5 million portfolio, the impact looks very different.
When evaluating a potential benefit cut, the central variable in your plan is not your total account balance, but your annual spending rate. A retiree with $5 million who spends $100,000 a year from their portfolio is in a comfortable position to absorb a partial reduction in guaranteed income. Conversely, a household with high annual overhead might already place significant withdrawal pressure on their investments, making even a minor income drop something to manage carefully. Spending is always the primary driver of portfolio longevity, rather than the raw net worth number alone.
For most retirees in the $2 million to $8 million range, a 25% reduction in Social Security would not derail a well-designed plan. If a married couple receiving $60,000 in combined Social Security benefits saw a 22% to 25% reduction, the resulting gap is roughly $13,000 to $15,000 per year. Replacing that income directly from investments requires roughly $300,000 to $400,000 in extra portfolio capital over a multi-decade retirement, which is a manageable adjustment for a $5 million balance sheet.
I am not convinced an immediate across-the-board benefit cut is the most likely scenario when Congress eventually addresses the trust fund. Legislative changes are more likely to involve payroll tax adjustments or policy shifts to stretch revenues. However, even if you choose to take a conservative approach and model your plan around receiving 75% of your scheduled benefit, staying proactive with your annual tax projections remains the best way to maintain confidence throughout retirement.
Full Episode Transcript
Adam: Good morning, and welcome to Retirement Tax Matters. I'm Adam Reed. This is Garrett Crawford, our resident CFP® professional, and this morning we've got a totally uncontroversial, everybody agrees on it topic that we're wanting to kind of dive into. So, zero comments. Yeah. Social Security. We've had some clients we've talked to, and I just feel like the general consensus on this topic is that there's just some unease about it. Not that our job is to come in here and say big blanket statements that make everybody feel good, but I think there are some misconceptions and maybe some thoughts that are kind of on the extreme end. So I wanted to just give our general opinion as professionals that are in this world a lot. What are our thoughts on Social Security and our expectations with the trust report in the last couple years, what that means for Social Security, and where they're moving with this? Maybe, Garrett, you can give us a little bit of background because if there's an expert in this field or expert on this topic, I think you might be the guy to talk about this. You've been doing this for a long time with Social Security and doing seminars with people. I think more than just helping somebody decide when to file, you can maybe give them some confidence about, "Hey, is Social Security going to be around here in 10 years when I retire?" Or, "Hey, I'm retired. Is it going to be here in 10 years when I'm in the thick of my retirement?" I guess the caveat that most people that we're talking to in this $2 million to $8 million space, maybe this isn't all of your retirement, but we mention it time and time again, it's a great bedrock, it's a good foundation. And it takes pressure off your portfolio regardless of where you're at income-wise and asset-wise. So anyway, give us a little background on your experience with Social Security and kind of your initial thoughts.
Garrett: Yeah, sure. I just want to give people a heads-up. I'm about to go through a Social Security trust fund report, so you may know a lot of this, you may not. If you already know a lot of this, feel free to skip ahead of the podcast, maybe five minutes or so into the part where we're giving some anecdotal responses here. Because while it's maybe not the most exciting thing in the world, I feel like as financial planners, I want to get the facts out of the way, and then we can talk about opinion and advice after that. For this first part of the section, I pulled up the 2025 most recent Social Security Trust Fund report. It's an annual process where they're informing America about the current status of Social Security. It's one of our largest government programs. I pulled it up this morning. I think it was like 270 pages long. I'm familiar with the report. I've read through parts of it before, and even this morning I was using AI to summarize and spot some of the more interesting things. I wanted to share that with you this morning because I think this is a really good way to frame it, and I went through and verified this. Here are the key numbers for 2025, starting at the beginning of 2025 through the end. The total OASDI (OASDI stands for Old-Age, Survivors, and Disability Insurance) income revenues in 2025 was $1,449 billion dollars, mostly from payroll taxes. The OASDI program cost was $1,609 billion, mostly from benefit payments. You know it's a government program when it's running at a deficit.
Adam: There you go. They're really good at that. Yep.
Garrett: That's where all this starts. It's not bringing enough in from payroll taxes to cover the payments that are going out to a good portion of you listeners. If we do the math there, that means in 2025, the deficit was about $160 billion. The trust fund reserves (for years the Social Security program did not run at a deficit; in fact, they were running a surplus, so the money went into a Social Security trust fund to help prepare for this day when baby boomers were retiring and there was going to be a bigger stressor on the system). But this trust fund that we've had put aside for a long time is now paying out that $160 billion shortfall. We used some of the trust fund, and now the trust fund has declined from $2,721 billion to $2,561 billion. So we've still got some gas in the tank to get us through future years. I'm pulling this from the trust fund report too (reading off a sheet of paper) but it says the OASI trust fund (that's without the disability funds) is projected to become depleted in the fourth quarter of 2032, one quarter earlier than projected in last year's 2024 report. Upon reserve depletion in 2032, projected income is sufficient to pay, here's a key number we're going to talk a lot about today, 78% of scheduled benefits. We ran at a deficit in 2025. It cost us $160 billion. Our surplus trust fund is depleting, and because of a few things I'm about to mention that add to that issue, they're saying that once the fourth quarter of 2032 hits, the trust fund will no longer be able to make up that shortfall, and people, at current rates, stand to receive 78% of scheduled benefits. I thought this was interesting. A few reasons on top of just a lot of baby boomers out there: Number one, the fertility rate is dropping in our generation. It used to be 1.90 per woman and is dropping to 1.75. Social Security needs a lot of people behind it to fund benefits going on. As birth rates drop, that impacts the length of time the trust fund will last. Second, we loved talking about it last year, the One Big Beautiful Bill Act. What did that do? It lowered income taxes for a huge chunk of America, and when you lower income tax, that means there's less Social Security revenue. When I started this, I think the trust fund was going to go through 2040, maybe 2037, and over the past decade, this number keeps creeping closer and closer because of the permanent extension of the Tax Cuts and Jobs Act through the One Big Beautiful Bill Act. The other thing that the Social Security trust report mentioned was that there's less immigration happening. I don't understand all the economics of immigration increasing or decreasing, but the thought here is that there's less taxes being paid into the system. Last part about the trust fund report, and then we're going to move on to more fun stuff. Here's what the trust fund report recommended or foresees happening if the government does not act soon. They opined three different options if they wanted to fix the trust fund issue today to get it to last another 75 years. Option one: increase the payroll tax from 12.40% to 16.65% starting in January 2026. Option two: reduce scheduled benefits by 25.2% for all current and future beneficiaries in 2026. Or, if you wanted to grandfather some people in, option three: reduce benefits by 30.3% for those who become eligible for benefits after 2025. To wrap up this very technical, dry section of the podcast today: more is coming out than is going in. We're lowering taxes across the country, which adds to this problem, and something's got to give. That's why you're seeing a lot of these YouTube videos and articles talking about the Social Security Trust Fund.
Adam: Let's transition into something real for our listeners. The question I would have, and probably a lot of our people watching, is what does that mean for me? I've got $2 million to $8 million. Social Security's not my whole game plan, but it's certainly a part of the game plan. At $2 million, maybe it's a bigger part than it is at $8 million. But what does this mean for them? What do they need to have their finger on the pulse of, and what does that look like to plan for moving forward?
Garrett: In my 13 going on 14 years of working with retirees, this topic has come up over and over again. In fact, so much to the point where whenever I start talking about Social Security, I used to just go into a bunch of strategies and planning numbers, but now I start with, "What's your opinion on the future of Social Security?" Because it absolutely influences what somebody is going to do. They're either going to file at 62 because they think it's going bankrupt, or they might have a more measured approach and say, "You know, I'm not sure. I'm going to wait and maybe wait until 70. My spouse will take it sooner." But you have to be on the same page for what you think the longevity of Social Security is going to be. What I've found, and I've heard this from quite a few people (maybe some listeners out there have thought this too) is, "Hey, I don't want to depend on Social Security. If that happens in the future, great. If it doesn't, great. I'm not going to depend on the government. I'm going to do what I can to take control of my retirement, and I'm not going to depend on the government to come in and save me." I get that. But I think the problem becomes when you go one step beyond that, which is, "I'm going to plan for my retirement and assume that I won't get anything from Social Security." People in the comments say, "Well, that's what I'm going to do. That's the right way." I'm not saying that you're going to be worse off doing that, but I'm telling you from the Social Security Trust Fund report that they're not saying Social Security is going to zero. In fact, the revenue coming in is going to support potentially up to 78% of your benefit. As someone who has been involved with Social Security planning for people of all types, not just $2 million to $8 million, that is a problem for a lot of retiring America because they depend on these Social Security benefits to make their retirement happen. If you go out to YouTube and type in "Social Security Trust Fund report," you're probably going to see 3,000 videos on this subject, and a lot of them are going to say it's cataclysmic and a big deal with big scary headlines. For most of America, this is a pertinent, huge issue for their retirement. If we look at who this podcast is designed for (a retiree that's between $2 million and $8 million) it's a big deal. You paid a lot of money into Social Security; I'm not minimizing that. But it's probably not cataclysmic. It's probably not going to change your lifestyle or livelihood too much if your $50,000 or $60,000 Social Security benefit gets cut by 22%. That's not a small number, but what I'm saying from a financial planning perspective is the ultimate thing I would caution you about is perhaps when you hit $5 million, $6 million, $7 million (and I get this tone from a lot of people we work with) money is actually not the most valuable thing in life anymore. If I have $5 million, $5.5 million, or $5.75 million, that actually doesn't move the needle on my happiness or what I can do. Sure, it would be great, but what you find out is once you hit a certain level of wealth, time is one of your most valuable resources. What I would say to reframe the Social Security trust fund depletion for a $2 million to $8 million retiree is maybe don't get stuck on that idea that $0 are going to be there for your retirement. Instead, if you wanted to take a conservative measure, maybe you plan on only 75% of your benefits being there for your retirement and not zero. We were just talking recently, Adam, when somebody wants to plan with no Social Security and we turn that off, the success rate of their plan plummeted because replacing $100,000 or $80,000 of Social Security benefits requires a significant lump sum in retirement. It takes probably a couple million dollars to generate $80,000 a year from Social Security. If you assume you aren't going to have that, that means you need to have $2 million extra dollars, which even for somebody between $2 million and $8 million is an extra gap you have to fill.
Adam: And it's cost-of-living adjusted! A lot of our clients will live off their fixed income with their portfolio, and then their groceries get a little more expensive, things go up in price, and then they use their Social Security COLA adjustment to say, "Hey, we don't need to take more out of our portfolio." It's such a great foundational piece of anybody's retirement. For some people, it's their whole retirement, so I'm in agreement with you on that. Maybe the last question for you today: what is the likelihood you see, based on your experience and the history of Social Security, of tweaks throughout the years going from benefit cuts to congressional action? Someone saying, "Hey, we're going to step in and adjust this so we can keep providing benefits," versus, "Hey, we're just going to start chopping benefits."
Garrett: Whatever you say, this is on video and guaranteed locked in for life. We're holding you to it. I'll sign the bottom of this! I spent the past five minutes cautioning you from expecting $0 or 0% being there for your retirement, and maybe 75% is more realistic if you're a conservative person. If you really pin me down on whether I think Congress is going to cut benefits for retirees unexpectedly, after doing this for 13 or 14 years, I think a lot of our listeners will resonate with this: Congress can do whatever they want. In my limited time watching over a decade, sometimes they do really surprising things. In fact, on a related Social Security subject, something I never thought would happen (and they did it) was the Social Security Fairness Act that Biden signed right before he left office. There's something called the Windfall Elimination Provision and Government Pension Offset. In my opinion, there were really great reasons for those rules, even though it was communicated really poorly. I don't want to get off on a rabbit hole, but that was a rule I would not have expected them to overturn, and they did it with a pen stroke at the end of 2024 or early 2025. It reinforces this idea that Congress can do anything. I'm not going to sit up here and say that they won't cut benefits or do something different. But if you said, "Garrett, place your bet, what do you think is going to happen?" I think even for the $2 million to $8 million retiree, legislation is constantly coming after you to get a bigger slice of the tax pie and tax revenue. I do think you're going to be more in the crosshairs of future tax legislation. But Social Security is a third rail; nobody wants to touch it. My prediction is a combination of people living longer and working longer. Maybe they don't let people start collecting at 62; maybe it has to be a little bit longer. I think the payroll tax is going to go up. I've said before that if I were in Congress, I'd probably go after people like me and you, Adam. We would raise this, think about it for a little while, and go back to work because we're so busy with family, kids, and other things that we don't have the numbers to influence anything. If payroll goes from 12.4% to 14%, we'll say, "Oh man, we're making less money." I think that's bound to happen because the voting bloc is older, and I think raising the payroll tax would go down easier than cutting benefits. At the end of the day, I also think Congress, the IRS, and the government are wonderful at creative accounting. I can see where this thing just gets kicked down the road. It's a big-rock problem for government welfare programs and how we're funding them, but I think they'll kick this down the road until America has to deal with it. When America has to deal with it (kind of like the Tax Cuts and Jobs Act, where it's counterintuitive that the deficit is huge yet we're reducing taxes) I think they'll do some creative accounting to shore up Social Security. Do I think that's the best way? I don't know, but I would be surprised if 2032 rolls around and we're telling our $2 million to $8 million clients, "You're going to receive a 22% cut." Could happen, might happen, but what I don't think is going to happen is telling a $2 million to $8 million client, "Your Social Security is going to zero dollars." That would be unbelievable, and other things would have to happen first.
Adam: I agree with you. YouTube is full of crazy thumbnails and things that are wild, polarizing, and get you going. Hopefully our goal is to add value and bring some light to these topics. Maybe our little thumbnail says something like "Social Security Going Down in Flames." Maybe it won't be that crazy, but once you click on the video, we like to be level-headed. We like to give good, valuable information. Let us know in the comments what was helpful, what was not, and your thoughts. I know there are people in the comments who are extremely intelligent every week, sharing good information and hopping in to say, "This is awesome, this is helpful." The hope is to build a library of our content and a community to help us fill in gaps and answer questions, because we can't answer everything here. The last thing is our year-end tax planning checklist. If you're watching videos like this, you're planning for the future and you would eat this thing up; you'd love it. Go to our website, retirementtaxmatters.com. The link is down in the description. Go there, put in your email address, and we'll email you this little guide for doing year-end tax projections. We're big on tax-return-driven financial planning, where we use the tax return as the X-ray or MRI in the driver's seat of our financial planning to make good income projections every year.
Garrett: I looked the other day, and almost 500 people have taken you up on that offer and joined the weekly newsletter, where we're going into these issues deeper and deeper.
Adam: It's cool to see a community developing, not only on Apple Podcasts and YouTube, but also through the weekly newsletters. Garrett writes all the newsletters, so I can say this with less bias: it's incredible content. The value that's offered for free in a weekly email, with the information and work he puts in, you won't find anywhere else. Check it out and download it at retirementtaxmatters.com. We appreciate you guys following along. We love doing these videos once a week, Wednesday mornings at 8:00 AM, along with shorts here and there across different channels. Check us out on Apple, Spotify, and YouTube. I'm Adam Reed, this is Garrett Crawford, CFP® professional, and we are Retirement Tax Matters!
Garrett: See you next time.