Headlines warning that Social Security is “running out” have sparked fresh anxiety among younger investors. Some stories highlight a potential $460 monthly benefit cut. Others suggest the system may collapse entirely.

The reality is more complex.

According to the 2025 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds (PDF File), the program is facing a structural shortfall. But that does not mean Social Security is disappearing. And for workers in their 20s, 30s and early 40s, the most important questions are different from the ones driving today’s headlines.

Here’s what actually matters.

What The 2025 Trustee Report Says

Each year, Social Security’s trustees publish a detailed financial outlook. The 2025 report shows:

• The Old-Age and Survivors Insurance (OASI) Trust Fund (which pays retirement and survivor benefits) is projected to be depleted in 2033.
• If that happens and Congress does not act, incoming payroll tax revenue would be sufficient to pay 77% of scheduled OASI benefits.
• The combined OASI and Disability Insurance (OASDI) trust funds are projected to be depleted in 2034, at which point incoming revenue would cover about 81% of scheduled benefits.
• The 75-year actuarial deficit is 3.82% of taxable payroll.
• The open-group unfunded obligation over 75 years is $25.1 trillion in present-value terms.

Importantly, Social Security does not “go bankrupt.” Even after depletion, payroll taxes continue to flow in. And by law, benefits would be reduced to match incoming revenue.

That’s where the widely cited “23% cut” comes from – the gap between scheduled benefits and projected payable benefits after depletion.

For a retiree receiving $2,000 per month, a 23% reduction would mean roughly $1,540 instead. For those living primarily on Social Security, that would be a significant hit.

But most Millennials and Gen Z workers are decades away from retirement. For them, the issue is less about a sudden cut in 2033 and more about how policymakers may adjust the system long before they retire.

Why Social Security Is Struggling

The shortfall stems largely from demographics.

In 2024, there were about 2.7 workers per beneficiary. By 2040, that ratio is projected to fall to 2.3 workers per beneficiary. Fewer workers supporting more retirees means less payroll tax revenue per recipient.

Social Security’s costs have exceeded total income since 2021. In 2024, the program paid out $1.485 trillion in benefits and expenses, while taking in $1.418 trillion in income, drawing down trust fund reserves to make up the difference.

The 75-year shortfall equals 3.82% of taxable payroll. The trustees estimate that restoring long-term solvency would require either:

• An immediate and permanent payroll tax increase of 3.65% points (to 16.05% total), or
• An immediate and permanent benefit reduction of about 22.4%, or
• Some combination of both

Those are illustrative scenarios (not policy proposals) but they frame the size of the gap lawmakers must address.

How This Will Impact Millennials And Gen Z

For younger workers, four factors matter more than the 2033 headline.

1. Payroll Taxes

Today’s Social Security payroll tax rate is 12.4% of wages, split evenly between employers and employees (6.2% each), applied up to a taxable maximum ($176,100 in 2026) .

Lawmakers could:

• Raise the tax rate,
• Increase or eliminate the taxable wage cap, or
• Broaden the earnings base.

For Millennials and Gen Z, a payroll tax increase would affect take-home pay immediately. Even a one-percentage-point increase shared between workers and employers would reduce net wages over decades.

2. Full Retirement Age

The full retirement age (FRA) is already scheduled to rise to 67 for those born in 1960 or later.

One commonly discussed reform is gradually increasing the FRA further, reflecting longer life expectancy.

For younger workers, that would effectively reduce lifetime benefits unless they delay retirement. A higher FRA does not eliminate benefits, it changes the age at which full benefits are available and increases early-claiming penalties.

3. Benefit Formulas

Social Security uses a progressive benefit formula that replaces a higher percentage of earnings for lower-income workers.

Congress could:

• Adjust the bend points in the formula,
• Slow benefit growth for higher earners, or
• Modify cost-of-living adjustments (COLAs).

Younger higher-income earners are more likely to see formula changes than current retirees, who are politically sensitive constituencies.

4. The Role of Social Security in Retirement

Social Security was never designed to replace full earnings.

For middle-income earners, the program typically replaces around 40% of pre-retirement income. For higher earners, the replacement rate is lower. That means 401(k)s, IRAs, pensions and personal savings remain essential.

Many Millennials and Gen Z workers are already less reliant on Social Security projections when planning retirement. Surveys consistently show skepticism about future benefit levels.

In practical terms, that may be prudent. Even if lawmakers close the financing gap, the structure of the program could change.

The Bottom Line

Social Security faces a real shortfall. The 2025 Trustees Report projects trust fund depletion in 2033 for retirement benefits and 2034 for combined funds, with automatic benefit reductions if lawmakers fail to act .

But for Millennials and Gen Z, the more relevant issues are long-term structural reforms: payroll taxes, retirement age, and benefit formulas.

The program is unlikely to vanish. It is likely to change.

For younger investors, the prudent approach is not panic but preparation.

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