Millions of older Americans rely on Social Security to make ends meet in retirement. While the program can be a lifeline for many, there are risks to depending too heavily on your benefits.
The Social Security program has been struggling in recent years, and it may not be as reliable as it once was. Whether you’re already retired or planning to retire in the near future, there are some important realities to consider so you’re not caught off guard.
1. Benefits don’t go as far as they used to
Social Security was never designed to be the sole source of retirement income, but due to rising inflation, your benefits may not go as far in the future.
Nearly every year, Social Security recipients receive a cost-of-living adjustment (COLA) to help benefits keep up with increasing costs. But those COLAs haven’t been enough, as they’ve been consistently outpaced by inflation.
As a result, Social Security has already lost around 40% of its buying power since 2000, according to a 2022 report from nonprofit group The Senior Citizens League. If this trend continues, your benefits may not go nearly as far in a few decades as they do now.
2. Cuts could be looming
On top of inflation concerns, Social Security is also facing a cash shortage. The Social Security Administration (SSA) relies primarily on payroll taxes to fund benefits. But in recent years, the money coming in from taxes hasn’t been enough to fully cover benefit payments.
As a temporary solution, the SSA has been dipping into its trust funds to cover the deficit and continue paying benefits in full. But according to the SSA Board of Trustees’ latest projections, both of the trust funds are expected to be depleted by 2034.
If Congress doesn’t find a more permanent solution before then, the money coming in from taxes will only cover an estimated 80% of future benefits. In other words, if nothing changes between now and 2034, retirees could see their payments slashed by around 20%.
3. Lawmakers’ potential solutions could hurt retirees
While nothing is set in stone yet, lawmakers have been actively debating how to solve Social Security’s cash shortage problem. But some of the potential solutions could reduce your benefits.
One proposal, for example, involves raising the full retirement age (FRA) from 67 to 68 or beyond (with some lawmakers pushing to raise it to 70). This means you would need to wait longer to receive your full benefit payments, reducing the total amount you’d collect over a lifetime.
Another option is to reduce benefits for higher earners. This would lower the amount the SSA has to pay out in benefits, helping the program’s income go further. Because this is still just a proposal, it’s unclear who, exactly, would be affected or what the income cutoffs might be.
There are other solutions, too, that wouldn’t necessarily negatively affect retirees — such as increasing Social Security taxes for the wealthy — but so far, Congress hasn’t been able to agree on anything. As the clock ticks closer to 2034, however, lawmakers will be under increased pressure to find a solution before benefit cuts are on the table.
What can you do to protect your retirement?
There’s not much you can do to change the trajectory of the Social Security program, but you can take steps to reduce your dependence on your benefits. While this is easier said than done, boosting your personal savings can help keep your retirement safer, regardless of what happens with Social Security.
Another option, though, is to delay claiming benefits. Waiting even a year or two to file for Social Security can increase your payments by hundreds of dollars per month, which can go a long way.
In fact, if you have an FRA of 67 and you wait until age 70 to file, you’ll collect an extra 24% on top of your full benefit amount. If benefits do face cuts or lose buying power in the future, that monthly bonus can help cushion the blow.
Nobody knows for certain what the future holds for Social Security, but it’s wise to start planning now, just in case. The sooner you begin taking steps to prepare, the better off you’ll be.
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