Social Security Trust Fund Cuts and Maryland Retirees: How to Protect Your Retirement Plan

If you’re retired or approaching retirement in Maryland, the recent headlines about Social Security are hard to ignore. The program’s retirement trust fund is now projected to be depleted by late 2032, and without Congressional action, benefits could be cut by roughly 23–24% across the board.

For the more than one million Marylanders who receive Social Security benefits, that’s not an abstract policy debate. It’s a practical question about household income, tax planning, and whether your retirement plan can absorb the hit.

The good news is that Social Security won’t disappear entirely—even after depletion, payroll taxes would still fund about 76–77% of promised benefits. And Congress has strong political incentives to act before cuts take effect. But hoping for the best isn’t a retirement strategy. The responsible approach is to understand what’s actually happening, model what a reduction would mean for your specific situation, and make adjustments now while you still have time and flexibility.

This guide walks through the trust fund timeline, what potential cuts could look like in real dollar terms, how Maryland retirees are specifically positioned, and a practical framework for stress-testing your retirement plan against this risk.

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Will Social Security Run Out? What the Trust Fund Timeline Really Means

Before diving into planning strategies, it helps to understand what “trust fund depletion” actually means—because the headlines can be misleading.

The Latest Projections: 2032–2034 Depletion Explained

Social Security’s Old-Age and Survivors Insurance (OASI) Trust Fund—the one that pays retirement benefits—is now projected to be depleted by late 2032. If you combine the retirement fund with the smaller Disability Insurance (DI) Trust Fund (which requires an act of Congress), the combined depletion date is approximately 2034.

These projections come from two sources: the June 2025 Trustees Report, which set the OASI depletion at 2033, and an August 2025 update from Social Security’s Chief Actuary that moved it forward by several months. The acceleration was driven by two pieces of recent legislation:

• The Social Security Fairness Act (January 2025): This law repealed the Windfall Elimination Provision (WEP) and Government Pension Offset (GPO), increasing benefits for about 2.8 million public-sector retirees. It’s projected to add nearly $200 billion to the program’s shortfall over the next decade.
• The One Big Beautiful Bill Act (July 2025): By reducing income taxes on Social Security benefits for seniors, this law reduced the revenue flowing into the trust fund by an estimated $169 billion over ten years.

Both laws were popular with retirees—and both accelerated the trust fund’s timeline. That’s an important dynamic to understand: even well-intentioned benefit expansions can bring the depletion date closer.

How Much of Your Benefits Would Still Be Paid

Here’s the critical distinction most headlines miss: trust fund depletion does not mean Social Security stops paying benefits.

Even after the trust fund is exhausted, payroll taxes from current workers will continue flowing into the system. Those ongoing tax revenues are projected to cover approximately 76–77% of scheduled retirement benefits immediately after depletion, declining gradually to around 72% by 2099.

In practical terms, this means a retiree currently receiving $2,500 per month wouldn’t see their check drop to zero. Under a worst-case scenario where Congress does nothing, they’d receive roughly $1,900–$1,925 per month instead. That’s a meaningful reduction, but it’s very different from losing the benefit entirely.

Understanding this distinction matters because it shapes how you should plan. You’re not planning for the loss of Social Security—you’re planning for a potential 20–25% reduction that may or may not happen, depending on what Congress does.

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What Potential Benefit Cuts Could Look Like for a Typical Retiree

Abstract percentages are hard to feel. Let’s put real numbers to what a benefit cut would mean.

Example: What a 23% Cut Means to a $2,500 Monthly Benefit

Consider a Maryland retiree currently receiving $2,500 per month in Social Security—roughly in line with the state’s average retired-worker benefit of about $2,140, adjusted upward for higher earners or those who delayed claiming.

Scenario	Monthly Benefit	Annual Benefit	Annual Reduction
Full scheduled benefit	$2,500	$30,000	—
23% cut (Trustees estimate)	$1,925	$23,100	–$6,900
20% cut (more conservative)	$2,000	$24,000	–$6,000

For a married couple where both spouses receive benefits, the impact doubles. If combined household Social Security income is $4,200 per month, a 23% cut would reduce annual income by roughly $11,600.

Over a 20-year retirement, a 23% benefit cut for a typical individual retiree represents more than $130,000 in lost income—before accounting for future cost-of-living adjustments that would also be reduced.

Why Benefits Won’t Go to Zero—Even in the Worst Case

It’s worth repeating: Social Security is primarily a pay-as-you-go system. The trust fund is a supplement, not the sole funding source. In 2025, payroll taxes from approximately 185 million workers continue to flow into the system every pay period.

The trust fund exists because, for decades, Social Security collected more in payroll taxes than it paid in benefits. That surplus was invested in Treasury securities. Now the program is drawing down those reserves to cover the gap between incoming tax revenue and outgoing benefits. Once the reserves are gone, benefits must be paid solely from current revenue—hence the projected cut.

This is why the framing of “Social Security running out” is misleading. The program would still be the largest source of retirement income for most Americans. But it would pay less than what’s currently promised.

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Maryland Perspective: How Social Security Cuts Could Affect Maryland Retirees

National projections tell part of the story, but Maryland retirees face a specific set of circumstances that deserve closer attention.

How Many Marylanders Rely on Social Security Today

According to AARP data cited by the Maryland Association of Counties, roughly 1.05 million Maryland residents receive Social Security benefits. For many, particularly in rural and suburban communities across the Eastern Shore, Western Maryland, and Southern Maryland, Social Security represents a significant portion—sometimes the majority—of household retirement income.

Maryland also has one of the highest average retired-worker benefit amounts in the country, at approximately $2,140 per month. That’s the fifth-highest average among all states, reflecting the state’s higher-than-average wages during working years—particularly among federal employees and government contractors in the Baltimore-Washington corridor.

Higher average benefits mean higher dollar-amount exposure to cuts. A 23% reduction on a $2,140 monthly benefit is roughly $492 per month, or nearly $5,900 per year.

Maryland Taxes on Social Security and Other Retirement Income

One piece of good news for Maryland retirees: Social Security benefits are completely exempt from Maryland state income tax. You can subtract 100% of your Social Security income on your Maryland return, regardless of your income level.

However, if Social Security benefits are reduced and you need to draw more from other sources—such as traditional IRAs, 401(k)s, or pensions—those withdrawals are generally subject to Maryland income tax. Maryland does offer a pension exclusion of up to $41,200 for taxpayers age 65 and older (for tax year 2025), but this exclusion is reduced dollar-for-dollar by Social Security benefits received.

Here’s the planning nuance: if your Social Security benefits are cut, the pension exclusion effectively becomes more valuable because less Social Security means less offset against the exclusion. But the additional taxable withdrawals you’d need to replace the lost income could still push you into higher state and local tax brackets. Maryland’s combined state and local income tax rates range from roughly 4.25% to over 9%, depending on your county.

Case Study: A Columbia, MD Couple Stress-Tests Their Plan

Note: This is a composite scenario for illustration, not a specific client.

David and Karen are 63 and 61, living in Columbia, Maryland. David is a retired federal employee with a FERS pension of $3,200/month and a TSP balance of $620,000. Karen worked in the private sector and has a 401(k) with $380,000. David’s projected Social Security benefit at full retirement age (67) is $2,800/month. Karen’s is $1,600/month.

Their current retirement plan assumes full Social Security benefits. Under that scenario, their combined retirement income is comfortable, and they plan to delay claiming until 67 and 66, respectively.

When they stress-test with a 23% cut:

• David’s Social Security drops from $2,800 to $2,156/month (–$644)
• Karen’s drops from $1,600 to $1,232/month (–$368)
• Combined annual reduction: approximately $12,100

To maintain their planned lifestyle, they’d need to withdraw an additional $12,100 per year from their TSP and 401(k)—money that’s subject to federal and Maryland income tax. Over 25 years of retirement, that’s roughly $300,000 in additional withdrawals (before accounting for investment growth or inflation), which meaningfully changes their portfolio longevity projections.

This is exactly the kind of analysis that reveals whether a plan is truly resilient or just works under favorable assumptions.

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Should You Claim Social Security Early Because of the Trust Fund News?

Every time trust fund headlines resurface, a wave of retirees and near-retirees start asking: “Should I claim early to lock in my benefits before they get cut?”

It’s an understandable impulse. But in most cases, it’s the wrong move.

Why Claiming Early to “Beat the Cut” May Backfire

The logic seems straightforward: if benefits might be cut by 23% in 2032, grab what you can now at 62 or 63. But this reasoning has several flaws:

Cuts would likely apply across the board. Under current law, if the trust fund is depleted, all beneficiaries—those who claimed early, at full retirement age, or at 70—would face the same percentage reduction. Claiming early doesn’t protect you from cuts; it just means you’re taking a permanently reduced benefit that then gets cut further.

Delayed credits are percentage-based. If you wait until 70, your benefit is roughly 24–32% higher (depending on your birth year) than if you claimed at full retirement age. Even after a 23% cut, a delayed benefit is typically still larger than an early-claiming benefit after the same cut.

The math usually favors patience. Consider a simplified example: If your benefit at 62 is $1,800/month and your benefit at 70 is $3,168/month, a 23% cut brings those to $1,386 and $2,439, respectively. The delayed-claiming amount is still 76% higher.

Congress is more likely to protect current and near-retirees. Historically, when Social Security reforms have been enacted, changes have been phased in gradually with protections for people already receiving benefits or close to claiming. In 1983, the last major reform raised the full retirement age—but not for anyone already over 25 at the time.

Age-by-Age Guidance for Maryland Pre-Retirees

If you’re in your late 60s (already claiming or about to): Your exposure to potential cuts is real but relatively short-term before Congress would need to act. Focus on making sure the rest of your income plan—pensions, withdrawals, Roth conversions—can flex if benefits are trimmed. Resist the urge to make dramatic changes based on headlines.

If you’re in your early 60s: You have the most to gain from careful claiming strategy. The decision to claim at 62 vs. 67 vs. 70 involves many factors beyond trust fund risk: health, spouse’s benefits, other income, tax brackets, and longevity. Don’t let one variable—trust fund headlines—drive a multi-decade decision.

If you’re in your 50s: You have the longest runway and the most flexibility. This is the ideal window for aggressive Roth conversions, maximizing retirement savings, and building income sources that don’t depend on Social Security. Think of trust fund risk as one more reason to diversify your retirement income streams now.

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How to Stress-Test Your Retirement Plan for Possible Social Security Cuts

Rather than guessing what Congress will do, the practical approach is to build a plan that works under multiple scenarios. Here’s a framework.

Step 1: Choose Realistic Social Security Assumptions

Most retirement projections default to 100% of your projected benefit. That’s optimistic. Consider running your plan under three scenarios:

1. Full benefits (100%): Congress acts in time and benefits are preserved.
2. Moderate reduction (85%): Congress acts but with partial cuts or means-testing for higher earners.
3. Trustee projection (75–77%): No Congressional action; benefits are automatically reduced to match payroll tax revenue.

If your retirement plan is solid under scenario 3 and comfortable under scenario 2, you’re in a strong position regardless of what happens in Washington.

Step 2: Identify Your Income Gap

For each scenario, calculate the gap between your planned spending and your income from all sources: Social Security (at the assumed level), pensions, rental income, annuities, and part-time work.

The difference is what your portfolio needs to cover. Pay attention to how the gap changes over time—especially in the years immediately after a potential 2032 cut, when you may need to accelerate withdrawals from tax-deferred accounts.

Step 3: Adjust Your Withdrawal and Tax Strategy

If your stress test reveals a meaningful gap under the reduced-benefit scenarios, consider adjustments now:

• Accelerate Roth conversions in the years before potential cuts. Converting traditional IRA or 401(k) assets to Roth while you’re in a lower tax bracket creates a tax-free income source that isn’t affected by Social Security changes—and doesn’t create taxable income that could trigger IRMAA surcharges on Medicare premiums.
• Build a cash reserve covering 2–3 years of the potential income gap. This prevents you from being forced to sell equities in a down market to cover a sudden income shortfall.
• Review your withdrawal sequence. The order in which you draw from taxable, tax-deferred, and Roth accounts matters significantly—especially if you’re trying to manage Medicare IRMAA thresholds and Maryland income tax brackets simultaneously.

Step 4: Special Considerations for Maryland Federal Retirees

Maryland’s Baltimore-Washington corridor is home to one of the largest concentrations of federal employees and retirees in the country. If you’re a FERS retiree with a combination of a federal pension, TSP savings, and Social Security, trust fund risk creates specific planning questions:

• FERS pension coordination: Your FERS supplement (if applicable) bridges the gap between retirement and Social Security eligibility. If Social Security benefits are eventually reduced, your supplement amount wouldn’t change—but the benefit it was designed to bridge toward would be lower than expected.
• TSP withdrawal strategy: Many federal retirees default to the TSP’s annuity or systematic withdrawal options without modeling how a Social Security cut would change the optimal approach. A 23% reduction in Social Security may mean you need to increase TSP withdrawals earlier, which has tax implications.
• Social Security Fairness Act impact: If you previously had benefits reduced by WEP or GPO, the repeal of those provisions in January 2025 increased your Social Security. But that same law accelerated the trust fund’s depletion timeline. You may be receiving more now, but the long-term outlook for those benefits is less certain.

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Action Checklist for Maryland Pre-Retirees and Retirees

10 Questions to Ask Your Financial Advisor About Social Security Cuts

1. Have we stress-tested my retirement plan with a 20–25% Social Security reduction starting in 2032?
2. What is my portfolio’s “survival rate” under a reduced-benefit scenario—and does it still last through age 90 or 95?
3. Should I accelerate Roth conversions now to create tax-free income that doesn’t depend on Social Security?
4. How would a benefit cut interact with my Medicare premiums and IRMAA thresholds?
5. Does my current Social Security claiming strategy still make sense given the trust fund timeline?
6. If I’m married, how would cuts affect our survivor benefit strategy—especially considering the widow’s tax penalty?
7. How much additional savings would I need to offset a 23% benefit reduction over 20+ years?
8. Am I relying too heavily on Social Security relative to my other income sources?
9. Should I adjust my asset allocation to be more conservative (or more growth-oriented) given this risk?
10. What’s our plan if Congress acts but implements means-testing that reduces benefits for higher earners?

When to Revisit Your Plan as Congress Debates Social Security

Congress has a long history of waiting until the last possible moment to address Social Security funding. The 1983 reforms were enacted just months before the trust fund would have been depleted. It’s reasonable to expect a similar pattern this time.

Here’s a practical timeline for when to review your plan:

• Now (2026): Run your baseline stress test. Establish what a 20–25% cut would mean for your specific situation. Begin any Roth conversion or tax planning strategies that benefit from acting early.
• 2028–2029: Mid-term elections and early presidential primary season often bring Social Security proposals into focus. By this point, the trust fund reserves will have dropped below 100% of annual costs. Watch for concrete legislative proposals and model their impact.
• 2030–2031: If no legislation has passed, this is the window to make more significant adjustments: increasing cash reserves, locking in fixed-income sources, or adjusting your withdrawal strategy for a higher-probability cut scenario.
• 2032: If depletion occurs without Congressional action, benefit reductions would be automatic. By this point, your plan should already account for this possibility.

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Conclusion

The Social Security trust fund’s projected depletion isn’t a reason to panic—but it is a reason to plan. For Maryland retirees and those approaching retirement, the key takeaways are straightforward:

Social Security won’t disappear. Even in the worst case, about three-quarters of scheduled benefits would continue to be paid. But a 23–24% cut would be significant—potentially reducing a typical Maryland retiree’s income by $5,000 to $12,000 per year depending on the household.

The right response isn’t to rush into early claiming or make dramatic portfolio changes. It’s to stress-test your plan against realistic scenarios, use the time you have to strengthen your position through strategies like Roth conversions and diversified income planning, and revisit your assumptions as the political landscape evolves.

Key Takeaways:

• The Social Security retirement trust fund is projected to be depleted by late 2032, which could trigger automatic benefit cuts of roughly 23–24% if Congress doesn’t act.
• Benefits won’t go to zero. Ongoing payroll taxes would still fund approximately 76–77% of scheduled benefits.
• Maryland’s 1.05 million Social Security recipients face higher dollar-amount exposure due to above-average benefit levels.
• Claiming early to “beat the cut” is almost always counterproductive—delayed benefits remain larger even after an across-the-board reduction.
• Stress-test your plan under three scenarios: full benefits, moderate reduction (85%), and trustee projection (75–77%).
• Roth conversions, withdrawal sequencing, and income diversification are the primary tools for building resilience.
• Maryland federal retirees should pay special attention to how cuts interact with FERS pensions, TSP withdrawals, and the Social Security Fairness Act.

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Your Next Step

If you’re a Maryland retiree or nearing retirement and want to understand exactly how potential Social Security cuts would affect your household income, tax situation, and long-term financial security, we can help you build clarity.

Schedule an introductory call with our team at RCS Financial Planning. We’ll walk through your specific numbers—Social Security projections, pension income, tax brackets, Medicare costs—and show you how your plan holds up under different scenarios. There’s no obligation and no pressure.

→ Schedule Your Introductory Call

Not ready to talk yet? Download our free retirement guide and discover how seven critical retirement decisions interact to shape your income, your taxes, and your long-term security — in ways most people don’t see until it’s too late.

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Sources: 2025 Social Security Trustees Report (SSA.gov); Social Security Chief Actuary August 2025 Update; Committee for a Responsible Federal Budget (CRFB); Bipartisan Policy Center; Maryland Association of Counties (Conduit Street); AARP Maryland; Maryland Comptroller’s Office. Rules and thresholds referenced are current as of early 2026 and may change. This article is for educational purposes only and does not constitute personalized financial advice. Please consult a qualified financial professional for guidance specific to your situation.