Social Security's Trustees Report Is Scary. But Don't Rush to Take Benefits Early

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Social Security’s 2025 Trustees Report — the Bad News and the Really Bad News

The 2025 Social Security Trustees Report was just released. The bad news? Social Security will run a cash-flow deficit in 2033 — one year earlier than expected, automatically triggering a 23 percent benefit cut absent other policy adjustments. The really bad news? The system is in far worse shape than its cash-flow problem suggests. Balancing Social Security’s long-term books requires a 30 percent permanent benefit cut starting now.

An alternative to cutting benefits is raising Social Security’s FICA payroll tax rate from its current 12.4 percent value to a whopping 17.6 percent. That’s the 5.2 percentage point permanent tax hike cryptically referenced in the Report’s table VI.F1 copied above.

The table also reports Social Security’s unfunded liability — the difference between the system’s projected future benefit payments and tax receipts, both measured in present value, less the system’s de minimis trust fund. Social Security’s $72.8 trillion off-the-books red ink is more than twice official national debt. It’s also $10 trillion larger than last year’s value thanks to passage of the Social Security Fairness Act and worse demographic and payroll tax projections.

Waiting to raise taxes, cut benefits, or do some of both makes required future adjustments larger. But kicking the can down the road lets today’s oldsters, which, incidentally, includes half of Congress, off-the-hook, dumping an even greater financial mess in our kids’ laps.

Hiding the Bacon

The Trustees Report has scores of tables, but table VI.F1 is the most important. Why then is it buried in the Appendix and ignored in the Overview? Because $72.8 trillion in off-the-books/implicit government debt is a highly inconvenient truth — one best hidden to the extent possible.

Social Security debt is off-the-books for a simple reason. Congress decided to label the System’s benefit obligations as “transfer” payments rather than as “return of principal plus interest” on FICA contributions for which it could have handed back special Treasury notes. (Chile and several other nations that privatized their state pensions switched, at the time of their “reforms,” to this alternative verbiage.)

Uncle Sam’s linguistic choice has not only helped hide Social Security’s ever worsening insolvency. It’s kept the public from asking about all the other off-the-book debts Uncle Sam is secreting.

The “trustees” focus, in their Overview, exclusively on the system’s 75-year unfunded liability suggesting that 75 years is far enough in the future to look. But truncating the analysis at 75 years or, indeed, any future date has no economic rationale. In so doing, the “trustees” are effectively assuming the system will end precisely 75 years from now.

As the table shows, this nutty assumption reduces the system’s red ink by almost two thirds. The trustees could just as well have said,

We’re only focusing on the system’s current-year liability. That’s far enough to consider. And, by the way, the 1-year unfunded liability is negative, so, all is well.

Looking Short-Term Leads to Too Little Too Late

Imagine a surgeon who removes half of their patient’s rapidly growing tumor telling them to come back in three years for another 50-percent operation. Three years later the patient returns with a tumor that’s ten times its original size. Again the surgeon operates on half and instructs the patient to return in three years. This ongoing too-little-too-late “solution” leads, of course, to the patient’s death.

But this precisely describes our government’s approach to Social Security solvency. Back in 1983, the Greenspan Commission, primarily manned by Congressmen, was charged with shoring up Social Security’s finances for the long term. It did no such thing. Instead, it partially addressed the system’s then extant 75-year liability. Today’s 5.2 percentage point tax hike needed to eliminated the system’s true, long-term fiscal gap is roughly 2.5 times the percentage point tax hike needed, back in 1983, to achieve long-term solvency. Social Security’s tumor is, thus, 2.5 times larger today than it was four decades ago. Yet given the Trustees Report’s focus on the 75-year unfunded liability, more too little too late is on the agenda.

Can the Rest of the Fiscal System Bail Out Social Security? Absolutely Not.

As described here, putting all federal and state outlays and receipts on the books comprises fiscal gap accounting for the entire government sector. Assuming, optimistically, that President Trump’s tariffs annually raise 0.8 percent of GDP, our country’s overall fiscal gap is 7.0 percent of annual GDP, i.e., we need to raise revenues or cut spending by 7.0 percent of GDP, year in and year out, immediately and forever, to balance what economists call the government’s intertemporal budget. That’s far beyond Social Security’s 1.6 percent of GDP fiscal gap.

How big is 7.0 percent of GDP? It’s huge. It exceeds all federal discretionary spending. Hence, DOGE could go whole hog — fire all federal employees, including the President and his illustrious cabinet, shut down the military, mothball Air Force One, end NASA, finish off the NIH, NSF, the CIA, the IRS, and the NSA, shutter the White House, cancel Musk’s contacts, …. It still wouldn’t suffice for Uncle Sam to cover all the entitlement payments he owes over time.

There is, however, a silver lining. As I discuss here and in my book, You’re Hired, the country can achieve solvency with radical healthcare, Social Security, tax, and welfare reforms and do so in a manner that would leave ourselves and our progeny far better off than the fiscal and economic disaster we’re creating.

Should You Collect Social Security Early Given Social Security’s Insolvency?

Wall Street’s answer is Panic! Take the money and run! But Wall Street seeks to pad its pocket, not yours. If you take Social Security early, you’ll be able to leave more assets in your retirement accounts — assets on which Wall Street can charge hefty fees and proceed to mismanage.

Here’s the correct answer: If it paid to wait to collect benefits, assuming no benefit cuts, it will surely still pay to wait even if the politically impossible happens — benefits are cut by 23 percent starting in 2033. True, the gain from waiting won’t be as large, but it will likely still be substantial.

The reasons for this assessment, which I illustrate below with my company’s $49 Maximize My Social Security software, are three.

First, delaying benefit collection can dramatically raise your starting payment amount. For example, Social Security’s real retirement benefit initiated at age 70 is 76 percent higher than if started at age 62.

Second, Social Security benefits have value well beyond the years you will, on average, collect them. Indeed, they have major value in those years when you least expect to collect them, including the last year to which you could possibly live — your maximum age of life.

How so? Because none of us can count on dying on time — at our life expectancy. Indeed, no one ever dies exactly at their life expectancy, just as no homeowner ever experiences precisely the average loss from a fire. Each of us will die when our number is called, not when some statistic says we’re suppose to call it quits.

And if we live far beyond our life expectancy, we’ll be extremely grateful to be receiving Social Security, which insures against longevity risk by continuing to pay us benefits no matter how long we live. Hence, we value Social Security for the benefits we may, but don’t expect, to need just as we value homeowners insurance for coverage we may, but don’t expect to need. The bigger those far flung, unlikely, but highly valuable benefits are the better.

Third, if benefits are cut, they will be cut regardless of whether they were collected early or late. Hence, taking benefits early won’t protect you from reduced benefits later. Indeed, the reduction could be less for those who waited in order to provide equity with those who collected early.

Waiting to Collect Can Still Pay Off Big Time Even Assuming a 23% Benefit Cut

Consider John, age 62, single, retired, who is due to collect a $50,000 nominal pension starting at age 70. John owns a non-mortgaged, $500K house in Delaware, which costs $12,500 annually in combined property taxes, insurance, and maintenance. John’s been a good saver. He has $1.25 million in an IRA and $1.25 million in a brokerage account. All his assets are invested in a TIPS ladder yielding 2 percent real. John, who is worried about living too long, sets his maximum age of life at 100.

John just shelled out $49 for Maximize My Social Security (MMSS) to decide whether to take Social Security immediately or wait till 70. He ran the program assuming no future benefit cuts. Waiting, he learned, raises his lifetime benefits (the present value of all future annual benefits) by $278,174. That, by the way, exceeds the cost of running MMSS by $278,125 — more than twice John’s after-tax earnings when he retired!

MMSS was brought to market in 2012, so 13 years ago. It was the first standalone Social Security tool and has received scores of media reviews and references as you can read here. MMSS’ Social Security code runs for miles. The program handles all benefits, all household situations, and all Social Security benefit provisions. Its code base is share by MaxiFi Planner, my company’s economics-based full lifetime financial planning tool, which Bankrate just named The Best Financial Planning Software of 2025. MaxiFi Planner, as I’ll explain shortly, provides additional reasons to delay taking Social Security.

Does It Still Pay to Wait if Social Security Benefits Are Cut in 2033 by 23 Percent?

MMSS can answer this question in literally one second. You just run the tool again specifying a 23 percent benefit cut in 2023. As always, MMSS will compare your lifetime benefit maximizing collection strategy with your own, specified collection plan.

The gain from waiting is now smaller — $142,925, compared with $258,174, but it’s still huge. Moreover, if Congress were to fully or partially equalize the lifetime benefit cut, calculated as of age 62, of those who collected their retirement benefit early with those who collected it later, John’s lifetime benefits would be lower whether he takes them at 62 or 70, but the absolute gain from waiting could remain the same or close to its current value!

Taking Social Security Early Can Reduce Your Gains from Roth Optimization

MaxiFi Planner, which, as mentioned, run the same Social Security optimization code as MMSS, costs an extra $100. But it can answer all your financial planning questions, not just those connected to Social Security.

One such question is whether to do Roth conversions and, if so, how much to convert each year. As discussed here, there are multiple interconnected ways to lower your lifetime taxes and Medicare Part B IRMAA premiums via conversions. One of these entails converting early to avoid kicking up federal and, in some cases, state income taxation of your Social Security benefits. Obviously, conversion prior to collecting Social Security can’t raise Social Security-based income taxation.

For John, the lifetime tax savings from conversions total $92,712 if he starts Social Security immediately. But if he waits till 70, the savings are $144,467. That’s a $51,755 difference.

Recapping

Absent future Social Security benefit cuts, John can, as MaxiFi shows, pick up $258,174 from waiting till 70 to collect his retirement benefit plus another $144,467 from optimal Roth conversions. That’s a massive $422,592 — over three years of John’s last year’s after-tax earnings! It’s also, politically speaking, the most likely scenario. Under this scenario, the return on investing $149 in MaxiFi is almost 3000 percent.

If Social Security benefits are cut by 23 percent in 2033 and John takes his benefit at 62, there are no gains from optimizing Social Security benefit collection and his Roth savings are $92,712. Under this, again, highly unlikely scenario, John still stands to gain $142,925 from waiting till 70 to collect, plus $144,467, not $92,712, from Roth conversions.

Finally, although benefit cuts will hurt, if Congress decides to treat those who wait to collect symmetrically relative with those who don’t wait, the absolute Social Security lifetime benefit gains from waiting could be similar, possibly even the same as they are now. Why might Congress do this? Easy. Almost members of Congress likely either waited to collect their retirement benefit until 70 or are expected to do so.