The financial future of the more than 70 million Americans who receive Social Security benefits is slightly more secure than anticipated, according to theagency's annual trustees report,released May 6: The trust fund reserves used to pay beneficiaries are projected to become insolvent in 2035, a year later than previously projected.
Social Security will still exist after 2035, according to the trustees' findings, but retirees will only receive 83% of their full benefits. Preventing that shortfall requires congressional action and would likely involve trimming benefits or increasing the Social Security payroll tax.
Will Social Security run out?
- How Social Security is financed
- Why is Social Security important?
- What can Congress do about Social Security?
- What is the Cost of Living Adjustment?
- How you can supplement Social Security
- FAQ
- Bottom line
Find the best investment account to secure your future
How is Social Security financed?
Social Security is funded through payroll tax deductions paid by both employees and employers. In tax year 2024, payroll taxes are applied to the first $168,600 of an individual's yearly income.
The Social Security tax applied to both employees and employers is 6.2% of an employee's paycheck — or 12.4% in total. (Self-employed individuals pay the entire 12.4% themselves.)
More help: Take the Social Security retirement earnings test
When you contribute to Social Security, the money doesn't go to a specific fund allocated to you: Workers are paying into a system that pays for current retirees' benefits. For every dollar you pay in, 85 cents goes towards the Social Security trust fund, according to the Social Security Administration.
The other 15 cents goes to a separate fund that pays benefits to people with disabilities and their families.
According to the trustees' report, the Social Security Administration will run out of its reserves in 2035. Without congressional action, the fund will then only be able to pay out 83% of retirees' full benefits.
Why is Social Security important?
Social Security is one of the few programs that enjoys broad support across the political spectrum: In a 2024 AARP survey of Americans age 50 and older, 90% of respondents call it very important.
While it's intended to supplement peoples' retirement savings, about half of all seniors get at least 50% of their retirement income from Social Security, according to the Center on Budget and Policy Priorities.
Social Security has been referred to as part of the "three-legged stool" retirement, alongside personal savings and worker contribution plans like 401(k) plans and IRAs.
Social Security Cost of Living Adjustment
In addition to meeting its current obligations, the Social Security fund must also account for the annual Cost of Living Adjustment (COLA): To help beneficiaries maintain their purchasing power, the Social Security Administration announces the COLA for the following year's benefits.
The yearly adjustment is based on the change in the Labor Department's Consumer Price Index from the third quarter of the prior year to the third quarter of the current year.
The COLA for 2024 is3.2%, which works out to an average increase of $55 per check for the nearly 67 million Americans who receive benefits.This increase began with December 2023 benefits, which were paid in January 2024.
What can Congress do about Social Security?
Changes to Social Security benefits and revenue sourcesneed to come from Congress. There are different strategies but most involve one or more of the following:
- Cutting benefits
- Increasing the payroll tax (or the income limit).
- Increasing the age at which taxpayers can claim benefits
The last time Social Security faced a reserve deficit was in 1983. Bipartisan legislation increased the full retirement age from 65 to 67 and charged income tax on Social Security benefits.
How to supplement your Social Security
When it comes to saving for retirement, it's essential to start as early as possible. Experts recommend setting aside between 10% and 15% of your paycheck, but you can start small and increase over time. If you have outstanding credit card bills or student loans, clearing those debts may take precedence.
401(k) plan
A 401(k is a retirement investment account sponsored by an employer. Contributions are tax-deferred, so they can lower your taxable income the year they're made and give you more to invest. If your company matches 401(k)s, maxing out your contributions should be the priority. Many employers will match between 2% and 4% of an employee's annual salary.
IRA
An individual Retirement account (IRA) is another investment option, but it's not connected to your employer and typically has more options.
Like a 401(k), a traditional IRA is tax-deferred and contributions can be tax-deductible, funds in the account grow tax-free, but withdrawals are subject to income tax when you take distributions. CNBC Select tapped Charles Schwab, Fidelity and Betterment as among the top picks for IRAs.
Charles Schwab
Minimum deposit and balance
Minimum deposit and balance requirements may vary depending on the investment vehicle selected. No account minimum for active investing through Schwab One®Brokerage Account. Automated investing through Schwab Intelligent Portfolios® requires a $5,000 minimum deposit
Fees
Fees may vary depending on the investment vehicle selected. Schwab One®Brokerage Account has no account fees, $0 commission fees for stock and ETF trades, $0 transaction fees for over 4,000 mutual funds and a $0.65 fee per options contract
Bonus
None
Investment vehicles
Robo-advisor: Schwab Intelligent Portfolios® and Schwab Intelligent Portfolios Premium™ IRA: Charles Schwab Traditional, Roth, Rollover, Inherited and Custodial IRAs; plus, a Personal Choice Retirement Account® (PCRA) Brokerage and trading: Schwab One®Brokerage Account, Brokerage Account + Specialized Platforms and Support for Trading, Schwab Global Account™ and Schwab Organization Account
Investment options
Stocks, bonds, mutual funds, CDs and ETFs
Educational resources
Extensive retirement planning tools
Terms apply.
Fidelity Investments
Minimum deposit and balance
Minimum deposit and balance requirements may vary depending on the investment vehicle selected. No minimum to open a Fidelity Go®account, but minimum $10 balance according to the investment strategy chosen
Fees
Fees may vary depending on the investment vehicle selected. Zero commission fees for stock, ETF, options trades and some mutual funds; zero transaction fees for over 3,400 mutual funds; $0.65 per options contract. Fidelity Go® has no advisory fees for balances under $25,000 (0.35% per year for balances of $25,000 and over and this includes access to unlimited 1-on-1 coaching calls from a Fidelity advisor)
Bonus
Find special offers here
Investment vehicles
Robo-advisor: Fidelity Go® IRA: Traditional, Roth and Rollover IRAs Brokerage and trading: Fidelity Investments Trading Other:Fidelity Investments 529 College Savings; Fidelity HSA®
Investment options
Stocks, bonds, ETFs, mutual funds, CDs, options and fractional shares
Educational resources
Extensive tools and industry-leading, in-depth research from 20-plus independent providers
Terms apply.
Betterment
Minimum deposit and balance
Minimum deposit and balance requirements may vary depending on the investment vehicle selected. For example, Betterment doesn't require clients to maintain a minimum investment account balance, but there is a ACH deposit minimum of $10. Premium Investing requires a $100,000 minimum balance.
Fees
Fees may vary depending on the investment vehicle selected, account balances, etc. Click here for details.
Investment vehicles
Robo-advisor: Betterment Digital Investing IRA: Betterment Traditional, Roth and SEP IRAs 401(k): Betterment 401(k) for employers
Investment options
Stocks, bonds, ETFs and cash
Educational resources
Betterment offers retirement and other education materials
Terms apply. Does not apply to crypto asset portfolios.
A Roth IRA is an after-tax account, so you don't have to pay taxes on your gains later. Ally Invest and Wealthfront rank among the best options for Roth IRAs.
There are also robo-advisor services that can build a portfolio for you based on your risk tolerance and time horizon and rebalance as you get closer to retirement. Top robo-advisors include E-Trade and SoFi.
E*TRADE
Minimum deposit and balance
Minimum deposit and balance requirements may vary depending on the investment vehicle selected. No minimum to open an E*TRADE brokerageaccount; minimum $500 deposit to invest in robo-advisor platform Core Portfolios
Fees
Fees may vary depending on the investment vehicle selected. Zero commission fees for stock, ETF and options trades; zero transaction fees for over 4,400 mutual funds; robo-advisor Core Portfolios charges 0.30% annual advisory fee
Investment vehicles
Robo-advisor: E*TRADE Core Portfolios IRA: E*TRADE Traditional, Roth, Rollover, Beneficiary, SEP and SIMPLE IRAs, IRA for Minors and E*TRADE Complete™IRA Brokerage and trading: E*TRADE Trading Other:E*TRADE Coverdell ESA (Education Savings Account), Custodial Account for minors and small business retirement plans
Investment options
Stocks, bonds, mutual funds, CDs, ETFs, options and futures
Educational resources
Educational library includes in-depth articles and videos for any type of investor
Terms apply.
SoFi Invest®
On SoFi's secure site
Minimum deposit and balance
Minimum deposit and balance requirements may vary depending on the investment vehicle selected. No account minimum for active or automated investing, or to participate in IPOs. $5 minimum to own a fractional share of a company.
Fees
Fees may vary depending on the investment vehicle selected. Active investing has zero commission fees for trading stocks and ETFs (exchange and fund management fees may apply). Automated investing has zero management fees
Bonus
Download the SoFi appand get up to $1,000 when you open an Active SoFi Invest® Brokerage Account. SoFi covers up to $75 of any transfer fees your brokerage may charge when you transfer an account to SoFi
Investment vehicles
Robo-advisor: SoFi Automated Investing IRA: SoFi Traditional, Roth, SEP and Rollover IRAs Brokerage and trading: SoFi Active Investing
Investment options
Stocks, bonds, ETFs, fractional shares and IPO participation
Educational resources
Investors can create a personal watchlist that follows their stocks to stay up to date and receive the latest investing news
Terms apply.
Find the investment platform that works for you
FAQs
How much is the average Social Security check?
As of January 2024, the average monthly Social Security retirement benefit is $1,907.
When will Social Security run out?
According to the May 2024 Social Security trustees report, the fund reserves that help pay for Social Security benefits will run out in 2035. Without congressional intervention, retirees would then only be able to receive 83% of their full benefits.
When can I start receiving Social Security?
Full Social Security benefitsare available at age 67. You can start to receive benefits as early as 62, but the amount will be less. If you turn 62 in 2024, for example, your benefit would be about 30% lower than if you waited until you turned 67.
Can I draw Social Security and still work full-time?
you can receive Social Security retirement benefits and work full-time. If you are younger than the full retirement age of 67 and earn more than the yearly earnings limit, however, your benefits will be reduced.
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Bottom line
The Social Security trustees board predicts the agency's reserves will run out in 2035. Without action by Congress, recipients of Social Security benefits would then only receive 83% of their full benefits. Most Americans agree Social Security is a vital public service — and nearly half of seniors count on their Social Security checks for at least 50% of their retirement income.
Why trust CNBC Select?
At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can make informed decisions with their money. Every article is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of financial products. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties, and we pride ourselves on our journalistic standards and ethics.
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Read more
When should you start collecting Social Security?
The most common questions about Social Security, answered
How the 4% rule can help you save for retirement
Take the Social Security retirement earnings test
Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
