Social Security may not be as reliable as it once was.
It’s no secret that Social Security has been struggling. The program is facing some serious problems, and with lawmakers unable to come to an agreement on a solution so far, nobody knows what the future holds.
Many workers are understandably concerned about how this will impact their retirement. In fact, 72% of U.S. adults say they’re worried that when it comes time to retire, Social Security won’t be there for them, according to a 2023 report from the Transamerica Center for Retirement Studies.
So just how bad is the problem? And is your retirement at risk? Here’s what you need to know about the future of Social Security.
Is Social Security running out of money?
Perhaps the biggest concern facing Social Security is its cash shortfall, leading many to worry that the program is going bankrupt.
Social Security relies primarily on payroll taxes to fund benefits. In recent years, however, the money from taxes hasn’t been enough to fully cover benefit payments. To bridge the gap, the Social Security Administration (SSA) has been tapping its trust funds.
This has prevented benefit cuts so far, but those trust funds will run out of money eventually. According to the SSA Board of Trustees’ latest estimates, that will happen around 2034 — at which point, taxes and other income sources will only be enough to cover around 80% of projected benefits.
The good news is that Social Security isn’t going bankrupt. As long as workers continue paying taxes, the SSA will always have at least some money to fund benefits. The bad news, though, is that if lawmakers can’t come up with a solution before 2034, benefits could be slashed by around 20%.
Benefits won’t go as far as they used to
Even if Congress does find a way to solve Social Security’s cash shortfall and prevent benefit cuts, there’s another issue plaguing the program: Benefits are losing buying power. Over the last couple of decades, Social Security benefits haven’t been able to keep up with rising inflation — despite annual cost-of-living adjustments designed to do just that.
As a result, benefits aren’t going as far as they used to. Since 2000 alone, Social Security has lost a whopping 40% of its buying power, according to a 2022 report from The Senior Citizens League.
While this is concerning news for all older adults, it’s especially worrisome for those who are or will be relying heavily on their benefits in retirement. Social Security was never meant to be a sole source of income, but it’s getting increasingly more difficult to rely on benefits to make ends meet.
What can you do right now?
There’s not much you can do to prevent benefit cuts or help Social Security maintain its buying power. But you can take steps to reduce your dependence on your benefits and protect your retirement.
The most straightforward way to do this is to boost your savings. The more you rely on money from your 401(k), IRA, or other retirement accounts, the less you’ll need to worry about what the future holds for Social Security.
If you haven’t yet filed for benefits, you could also consider delaying claiming. Taking benefits early will reduce your payments, while waiting a few years will increase them. By holding off until age 70, you’ll receive your full benefit amount plus at least 24% extra each month — and that money could go a long way if Social Security faces cuts or greater loss of buying power.
Social Security currently may be shaky, but the situation isn’t as dire as many people believe. By taking steps now to secure your retirement, you can rest easier, regardless of what may happen down the road.
