Here’s what you need to know about the future of Social Security.
Social Security is a lifeline for millions of seniors. In fact, nearly one-quarter of U.S. adults age 50 and older say they have no other sources of retirement income outside of their benefits, according to a 2023 survey from the Nationwide Retirement Institute.
However, the Social Security program has been facing a cash shortfall in recent years, leaving many people concerned about its future.
Around 75% of adults age 50 and older say they’re worried Social Security will run out of funding in their lifetime, the Nationwide survey found, and 24% of U.S. adults across all age groups believe they won’t get a dime of the benefits they have earned.
There’s good news about bad news about the future of Social Security, though. The good news is that the problem isn’t as severe as many people believe. But the bad news is that there are still serious issues that could affect your benefits.
When will Social Security run out of money?
There have been many claims that the Social Security program is running out of funding and that it will go bankrupt in the coming years. While it is facing a financial shortfall, it’s not actually running out of money entirely.
Benefits are funded primarily through payroll taxes. Current workers pay Social Security taxes, and that money then goes to today’s beneficiaries. Payroll taxes likely won’t be going away anytime soon, so as long as workers continue paying those taxes, there will always be at least some money to pay out in benefits.
That said, taxes haven’t been enough to fully fund benefits in recent years, which has led to a deficit. The Social Security Administration (SSA) has been tapping its trust funds to bridge the gap, which has helped it avoid benefit cuts so far.
However, those trust funds are expected to run out by around 2034, according to the SSA’s most recent estimates. When that happens, the funding from taxes and other sources of income will only be enough to cover around 80% of future benefits.
In other words, while Social Security isn’t running out of money entirely, benefits could be cut by up to 20% by 2034 if lawmakers can’t find a solution before then.
One more major hurdle
The cash shortfall is only one of the challenges the program has been facing. Another hurdle is the fact that benefits have lost a substantial amount of buying power over the years.
Social Security is designed to keep up with inflation. In most years, beneficiaries will receive a cost-of-living adjustment (COLA) to help benefits maintain their buying power.
However, inflation has consistently outpaced these COLAs. In fact, since 2000, Social Security has lost a whopping 40% of its buying power, according to a 2022 report from The Senior Citizens League.
This means that benefits already don’t go nearly as far as they used to, and if this trend continues, Social Security may be even less reliable in the future. If you’re expecting to depend on your monthly checks in retirement, it may be time to come up with a backup plan.
Steps you can take to protect your retirement
Increasing your savings is perhaps the most foolproof plan to reduce your dependence on Social Security. That’s easier said than done, of course, but saving even a little more now can go a long way by retirement age.
Another option, though, is to consider delaying Social Security. Waiting until age 70 to start taking benefits will earn you at least 24% extra each month on top of your full benefit amount — potentially amounting to hundreds of dollars per month.
This adjustment is permanent, too, so you’ll collect larger checks every month for the rest of your life. If cuts are on the horizon or Social Security continues losing buying power, this boost in benefits can help cushion the blow.
Nobody knows for certain what the future holds for Social Security. But by staying aware of any changes to the program and taking steps now to prepare, you’ll be ready regardless of what happens.
