Will Social Security Be There When You Retire?
Social Security is projected to face a funding shortfall in 2034, leading many Americans to wonder if it will still be there when they retire. While the system won’t go bankrupt, benefits could be reduced by about 20% unless Congress acts. Our analysis at Greenbush Financial Group explores what 2034 really means, why lawmakers are likely to intervene, and how to plan your retirement with Social Security uncertainty in mind.
By Michael Ruger, CFP®
Partner and Chief Investment Officer at Greenbush Financial Group
If you’ve looked at your Social Security statement recently, you may have noticed a troubling note: beginning in 2034, the system will no longer have enough funding to pay out full promised benefits. For many Americans, this raises a big question: Will Social Security even be there when I retire?
In this article, we’ll break down:
How Social Security is currently funded and why it faces challenges
What the 2034 date really means (hint: it’s not “bankruptcy”)
Why Congress is likely to act before major benefit cuts happen
Practical solutions that could shore up the system for future retirees
Why meaningful reform may not happen until the last minute
How Social Security Works Today
Social Security is funded primarily through FICA payroll taxes. Workers and employers each pay 6.2% of wages (12.4% total) into the system, which goes toward funding retirement benefits for current retirees.
Here’s the key point: the money doesn’t accumulate in a large “savings account” for future benefits. Instead, today’s payroll taxes go right back out the door to pay today’s beneficiaries. This setup worked well when there were many workers for each retiree, but demographic trends are changing the math.
Baby Boomers are retiring in large numbers.
People are living longer, so they collect benefits for more years.
Birth rates are low, meaning fewer workers are paying into the system.
This imbalance is the root of Social Security’s funding challenge.
What Happens in 2034?
Many people think 2034 is the year Social Security “goes bankrupt.” That’s not the full story.
According to the Social Security Trustees’ report, if Congress does nothing, the system’s trust funds will be depleted by 2034. At that point, incoming payroll taxes would still be enough to pay about 80% of promised benefits.
In practical terms, this would mean an immediate 20% cut in benefits for all recipients. While Social Security wouldn’t disappear, such a cut would have a huge impact on retirees who rely on it as their primary source of income.
Why We Believe Congress Will Act
It’s our opinion that Congress will not allow benefits to be cut so dramatically. Here’s why:
For a large portion of Americans over age 65, Social Security is the primary source of retirement income.
Cutting benefits by 20% would potentially impoverish millions of retirees.
Retirees also represent a powerful voting population, making it politically unlikely that lawmakers would let the system fail without intervention.
That doesn’t mean changes won’t come—but it does make drastic benefit cuts less likely.
Possible Solutions to Fix Social Security
The challenge is real, but there are several practical options available. The earlier these changes are made, the smaller the adjustments need to be. If lawmakers wait until 2034, the fixes may be more drastic. Some of the most common proposals include:
1. Increasing the Taxable Wage Base
Right now, Social Security taxes only apply to wages up to $176,100 (2025 limit). Someone earning $400,000 pays Social Security tax on less than half of their income.
Raising or eliminating the cap would bring more revenue into the system.
While no one likes higher taxes, it may be less painful than the economic impact of the sudden cut in Social Security Benefits starting in 2034
2. Extending the Full Retirement Age
Currently, full retirement age is 67. But Social Security hasn’t been properly indexed for life expectancy. Studies suggest that if it were, the full retirement age could be in the early 70s.
Extending retirement age would reduce how long people collect benefits.
This adjustment reflects the fact that Americans are living longer and the Social Security system was not originally designed to make payments to retirees for 15+ years
3. Limiting Early Filing Options
Right now, many people file early at 62, locking in a reduced benefit.
One proposal is to require younger workers (e.g., those 50 and under) to wait until full retirement age to claim.
This would preserve more assets in the trust over the long term.
Why Reform May Be Delayed
Unfortunately, even though the math is clear, we don’t expect Congress to make many changes before 2034. Why? Because fixing Social Security is a politically unfriendly topic.
To save the system, lawmakers must either raise taxes or cut benefits.
Neither of those options wins votes, which makes reform easy to push off.
This likely means the situation will get more tense as we approach 2034. If reforms aren’t passed in time, one possibility is a government bailout of the Social Security Trust, with additional money created to keep it solvent. While this could buy time, it doesn’t address the underlying funding imbalance—and could carry broader economic consequences.
How We Plan Around Social Security Uncertainty
For our clients, we don’t take a “wait and see” approach. Since we don’t know the exact fate of Social Security, for clients under a specific age, we build retirement plans that assume a reduction in benefits.
If Social Security benefits are reduced in the future, our clients’ plans are already designed to account for the cut, meaning their retirement income won’t be derailed.
If, on the other hand, Congress keeps Social Security fully intact, that’s fantastic—it simply means more income than we initially projected.
This conservative approach provides peace of mind and ensures that retirement strategies remain flexible no matter what happens in Washington.
The Bottom Line
Social Security faces real funding challenges, but it’s highly unlikely to disappear. Instead, it will probably undergo adjustments to ensure long-term solvency.
For retirees and pre-retirees, the key takeaway is this: don’t panic, but don’t ignore it either. Build your retirement plan with the assumption that Social Security may look different in the future. A fee-based financial planner can help you model different scenarios and build a strategy that works no matter how Congress acts.
If you’d like to explore how Social Security fits into your retirement plan, learn more about our financial planning services here.
About Michael……...
Hi, I’m Michael Ruger. I’m the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.
Turn on Social Security at 62 and Your Minor Children Can Collect The Dependent Benefit
Not many people realize that if you are age 62 or older and have children under the age of 18, your children are eligible to receive social security payments based on your earnings history, and it’s big money. However, social security does not advertise this little know benefit, so you have to know how to apply, the rules, and tax implications.
Not many people realize that if you are age 62 or older and have children under the age of 18, your children are eligible to receive social security payments based on your earnings history, and it’s big money. However, social security does not advertise this little know benefit, so you have to know how to apply, the rules, and tax implications. In this article, I will walk you through the following:
The age limit for your children to be eligible to receive SS benefits
The amount of the payments to your kids
The family maximum benefit calculation
How the benefits are taxed to your children
How to apply for the social security dependent benefits
Pitfall: You may have to give the money back to social security…..
Eligibility Requirements for Dependent Benefits
Three requirements make your children eligible to receive social security payments based on your earnings history:
You have to be age 62 or older
You must have turned on your social security benefit payments
Your child must be unmarried and meet one of the following eligibility requirements:
Under the age of 18
Between the ages of 18 and 19 and a full-time student K – 12
Age 18 or older with a disability that began before age 22
How Much Does Your Child Receive?
If you are 62 or older, you have turned on your social security benefits, and your child meets the criteria above, your child would be eligible to receive 50% of your Full Retirement Age (FRA) Social Security Benefit EVERY YEAR, until they reach age 18. This can sometimes change a parent’s decision to turn on their social security benefit at age 62 instead of waiting until their Full Retirement Age of 67 (for individuals born in 1960 or later). But it gets better because the 50% of your FRA social security benefit is for EACH child.
For example, Jim is retired, age 62, and he has one child under age 18, Josh, who is age 12. If he turns on his social security benefit at age 62, he would receive $1,200 per month, but if he waits until his FRA of 67, he would receive $1,700 per month. Even though Jim would receive a lower social security benefit at age 62, if he turns on his benefit at age 62, Jim and his child Josh would receive the following monthly payments from social security:
Jim: $1,200 ($14,400 per year)
Josh: $850 ($10,200 per year)
Even though Jim receives a reduced SS benefit by turning on his benefit at age 62, the 50% dependent child benefit is still calculated based on Jim’s Full Retirement Age benefit of $1,700. Josh will be eligible to continue to receive monthly payments from social security until the month of his 18th birthday. That’s a lot of money that could go towards college savings, buying a car, or a down payment on their first house.
The Family Maximum Benefit Limit
If you have 10 children, I have bad news; social security imposes a “family maximum benefit limit” for all dependents eligible to collect on your earnings history. The family benefits are limited to 150% to 188% of the parent’s full retirement age benefit.
I’ll explain this via an example. Let’s assume everything is the same as in the previous example with Jim, but now Jim has four children, all under 18. Let’s also assume that Jim’s Family maximum benefit is 150% of his FRA benefit, which would equal a maximum family benefit of $2,550 per month ($1,700 x 150%). We now have the following:
Jim: $1,200
Child 1: $850
Child 2: $850
Child 3: $850
Child 4: $850
If you total up the monthly social security benefits paid to Jim and his children, it equals $4,600, which is $2,050 over the $2,550 family maximum benefit limit.
Always Use Your FRA Benefit In The Family Max Calculation
Here is another important rule to note when calculating the family maximum benefit, regardless of when your file for your social security benefits, age 62, 64, 67, or 70, you always use your Full Retirement Age benefit when calculating the Family Maximum Benefit amount. In the example above, Jim filed for social security benefits early at age 62. Instead of using Jim’s age $1,200 social security benefit to calculate the remaining amount available for his children, Jim has to use his FRA benefit of $1,700 in the formula before determining how much his children are eligible to receive.
Social security would reduce the children’s benefits by an equal amount until their total benefit is reduced to the family maximum limit.
These are the steps:
Jim Max Family Benefit = $1,700 (FRA) x 150% = $2,550
$2,550 (Family Max) - $1,700 (Jim FRA) = $850
Divide $850 by Jim’s 4 eligible children = $212.50 for each child
This results in the following social security benefits paid to Jim and his 4 children:
Jim: $1,200
Child 1: $212.50
Child 2: $212.50
Child 3: $212.50
Child 4: $212.50
A note about ex-spouses, if someone was married for more than 10 years, then got divorced, the ex-spouse may still be entitled to the 50% spousal benefit, but that does not factor into the family maximum calculation, nor is it reduced for any family maximum benefit overages.
Social Security Taxation
Social security payments received by your children are considered taxable income, but that does not necessarily mean that they will owe any tax on the amounts received. Let me explain, your child’s income has to be above a specific threshold before they owe any federal taxes on the social security benefits they receive.
You have to add up all of their regular taxable income and tax-exempt income and then add 50% of the social security benefits that they received. If your child has no other income besides the social security benefits, it’s just 50% of the social security benefits that were paid to them. If that total is below $25,000, they do not have to pay any federal tax on their social security benefit. If it’s above that amount, then a portion of the social security benefits received will be taxable at the federal level.
States have different rules when it comes to taking social security benefits. Most states do not tax social security benefits, but there are about 13 states that assess state taxes on social security benefits in one form or another, but our state New York, is thankfully not one of them.
You Can Still Claim Your Child As A Dependent On Your Tax Return
More good news, even though your child is showing income via the social security payment, you can still claim them as a dependent on your tax return as long as they continue to meet the dependent criteria.
How To Apply For Social Security Dependent Benefits
You cannot apply for your child’s dependent benefits online; you have to apply by calling the Social Security Administration at 800-772-1213 or scheduling an appointment at your local Social Security office.
Be Care of This Pitfall
There is one pitfall to the social security payment received by your child or children, it’s not a pitfall about the money received, but the issue revolves around the titling of the account that the social security benefits are deposited into when they are received on behalf of the child.
The premise behind social security providing these benefits to the minor children of retirees is that if someone retires at age 62 and still has minor children as dependents, they may need additional income to support the household expenses. Whether that is true or not does not prevent you from taking advantage of these dependent payments to your children, but it does raise the issue of the “conserved benefits” letter that many people receive once the child turns age 18.
You may receive a letter from social security once your child is 18 instructing you to return any of the social security dependent payments received on your child’s behalf and saved. So wait, if you save this money for our child to pay for college, you have to hand it back to social security, but if you spend it, you get to keep it? On the surface, the answer is “yes,” but it all depends on who is listed as the account owner that the social security payments are deposited into on behalf of your child.
If the parent is listed as an owner or joint owner of the account, you are expected to return the saved or “conserved” payment to the Social Security Administration. However, if the account that the social security payments are deposited into is owned 100% by your child, you do not have to return the saved money to social security.
Then I will get the question, “Well, what type of account can you set up for a 12-year-old that they own 100%?” Some banks will allow you to set up savings accounts in the name of a child at age 14, UTMA accounts can be set up at any age, and they are considered accounts owned 100% by the child even though a parent is listed as a custodian.
Watch out for the 529 account pitfall. For parents that want to use these Social Security payments to help subsidize college savings, they will sometimes set up a 529 account and deposit the payments into that account to take advantage of the tax benefits. Even though these 529 accounts are set up with the child listed as the beneficiary, they are often considered assets of the parents because the parent has control over the distributions from the account. However, you can set up 529 accounts as UTMA 529, which avoids this issue since the child is now technically the owner and has complete control over the assets at the age of majority.
FAFSA Considerations
Be aware that if your child is college bound and you expect to qualify for need-based financial aid, assets owned by the child count against the FAFSA calculation. The way the calculation works is that about 20% of any assets owned by the child count against the need-based financial aid that is awarded. There is no way around this issue, but it’s not the end of the world because that means 80% of the balance does not count against the FAFSA calculation and it was free money from Social Security that can be used to pay for college.
Social Security Filing Strategy
If you are age 62 or older and have minor children, it may very well make sense to file for Social Security early, even though it may permanently reduce your Social Security benefit once you factor in the Social Security payments that will be made to your children as dependents. But, you have to make sure you understand how Social Security is taxed, the Security earned income penalty, the impact of Social Security survivor benefits for your spouse, and many other factors before making this decision.
About Michael……...
Hi, I’m Michael Ruger. I’m the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.
Frequently Asked Questions (FAQs):
Who is eligible for Social Security dependent benefits?
If you are age 62 or older, have turned on your own Social Security retirement benefits, and have unmarried children under 18 (or under 19 and still in high school), your children may qualify for dependent benefits. Children with disabilities that began before age 22 are also eligible.
How much can a child receive in Social Security benefits?
A qualifying child can receive up to 50% of your full retirement age (FRA) benefit amount each year until they turn 18. This is based on your FRA benefit—not the reduced amount if you start collecting early.
What is the family maximum benefit?
Social Security limits the total amount that can be paid to one family to between 150% and 188% of the worker’s FRA benefit. If total family benefits exceed this limit, each child’s payment is reduced proportionally.
Are children’s Social Security benefits taxable?
Yes, but most children won’t owe taxes. If your child’s total income, including 50% of their Social Security benefits, is under $25,000, no federal tax is due. Most states do not tax Social Security benefits, though about 13 states have their own rules.
Can I still claim my child as a dependent on my tax return?
Yes. Even though your child receives Social Security benefits, you can still claim them as a dependent if they meet the IRS dependency criteria.
How do I apply for my child’s benefits?
You cannot apply online. Call the Social Security Administration at 800-772-1213 or schedule an appointment at your local SSA office to apply for dependent benefits.
What happens to the money if it’s saved instead of spent?
If the Social Security payments are deposited into an account owned jointly with the parent, the SSA may require repayment of “conserved” funds once the child turns 18. However, if the payments are deposited into an account owned solely by the child (like a UTMA account), the funds generally do not have to be returned.
How do these benefits affect college financial aid (FAFSA)?
Assets owned by the child—such as those in a UTMA account—count more heavily against financial aid eligibility. About 20% of the child’s assets are included in the FAFSA calculation, but 80% are still excluded.
Should I file for Social Security early to access dependent benefits?
It can make financial sense to claim benefits at 62 if your children qualify for dependent payments, but you should carefully weigh the long-term trade-offs, including reduced personal benefits, taxes, and survivor benefits for your spouse.
