Generation X (born 1965 to 1980) and millennials (born 1981 to 1996) have received a stark warning. Academic researchers state that full Social Security retirement benefits may not be guaranteed. This could happen without changes to tax laws and government benefit programs.
If Congress fails to secure new revenue streams, the Social Security Trust Fund 2033 benefits could be reduced by approximately 22%.1
Why is the Social Security Trust Fund at risk?
Several factors contribute to the projected shortfall:
- A large number of Baby Boomers (born 1946 to 1964) are drawing benefits.
- Americans are living longer, increasing the strain on the system.
- The Social Security tax limit restricts the amount of income that the government taxes for Social Security.
If you plan to start receiving Social Security benefits around 2033 or later, now is the time to take action to help ensure financial security in retirement. Social Security rules apply to everyone. However, your personal situation, especially if you are married, affects the best time to claim benefits.
This article looks at the current Social Security problem. It also offers guidance for individuals and families worried about losing income or running out of money in retirement.
Understanding the Social Security Trust Fund
The Social Security Administration (SSA) uses two funds to pay benefits:
- Federal Old-Age and Survivors Insurance Trust Fund (OASI)
- Federal Disability Insurance Trust Fund (DI)
The OASI is projected to be depleted by 2033, while the DI is expected to pay full benefits through 2098.2 Gen X Social Security benefits may be the first with a reduction. Gen X members reach full retirement age of 67 in 2032.
Policy options to stabilize the system include:
- Raising the full retirement age
- Restructuring the benefit calculation formula increasing payroll taxes on high-income earners
- Diverting revenue from other taxes into the Social Security Trust Fund
Social Security COLA numbers
The 2025 Social Security COLA (Cost-of-Living Adjustment) is 2.5%. On Oct. 24, 2025, the Social Security Administration announced Social Security COLA 2026 will be 2.8%.3
The Social Security tax limit for 2025 is $176,100. This means that the government does not tax any income above this amount for Social Security. This limit adjusts annually for inflation and has seen record increases in recent years.
| Average monthly benefit | 2025 | 2026 |
| Individual Retirees | $1,976 | $3,089 |
| Married Couples (in which both partners are receiving benefits) | $2,031 | $3,175 |
| Tax Cap | $176,100 | $184,500 |
Should I take Social Security early?
Many wonder whether to claim at age 62 to avoid future Social Security benefit reductions. However, doing so results in:
- A 30% reduction in monthly payments. For example, $1,383 vs. $1,976 at age 67 in 2025.
- A 35% reduction in spousal benefit amounts. (Noe that this reduction is specific to the spouse’s age. There won’t be a reduction in their spousal benefit if they elect benefits at age 67, even if the spouse whose benefit they are drawing from started at age 62.)
Waiting until you turn 67 to claim full retirement age Social Security can increase your benefits. If you wait until then, or age 70, your benefits can grow by 8% each year. You will also receive higher cost-of-living adjustments over time.
Even with a projected 22% reduction in 2033, the adjusted benefit is still higher than the early claim amount. Long term, the difference becomes more significant due to compounding increases.
Smart retirement planning for Gen X and Millennials
Relying solely on Social Security income may not be enough to maintain your lifestyle in retirement. Gen X and millennial retirement planning is essential. Consider:
- Investing the extra income after reaching the Social Security tax limit
- Building a Health Savings Account (HSA) for medical expenses
- Drawing from a 401(k) or IRA before claiming Social Security
Your financial situation should guide when to start benefits. Factors include:
- Tax consequences
- Legacy planning
- Spousal and survivor benefits
- Retirement savings
- Social Security growth rates
Taking action for a secure retirement
If you’re a Mercer Advisors client, remember that retirement planning is an ongoing process. Contact your wealth advisor if your financial priorities change.
Not a Mercer Advisors client? We have almost 40 years of experience helping clients with their retirement. We can help you move toward a successful retirement.
Our unified team of planners, investors, accountants, and estate specialists collaborate with you to design and execute your financial plan. Let’s talk.
1.“Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds.” Social Security Board of Trustees, 2023.
2.“Social Security will not be able to pay full benefits in 2035 if Congress doesn’t act.” CNN, May 6, 2024.
3.“Social Security Announces 2.8 Percent Benefit Increase for 2026.” Social Security Administration, Oct. 24, 2025.
All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change. Some of the research and ratings shown in this presentation come from third parties that are not affiliated with Mercer Advisors. The information is believed to be accurate but is not guaranteed or warranted by Mercer Advisors. Content, research, tools and stock or option symbols are for educational and illustrative purposes only and do not imply a recommendation or solicitation to buy or sell a particular security or to engage in any particular investment strategy.
