You've probably heard the lamentations. The United States' Social Security program is unraveling. Too few people are paying too little into the government-managed pool of funds at the same time too many people are taking too much out of that pool. It's simply not sustainable, the criticisms argue.
Well, the criticisms are somewhat on target. At its current trajectory, the Social Security trust funds will run out of money at some point in the early 2030s.
In this case, though, running out of money doesn't mean benefits will end entirely. Moreover, a handful of legislative moves meant to shore up the Social Security fund's shortfall are on the table. It's likely at least one of them will be implemented before it's too late.
Translation: Your Social Security benefits aren't simply destined to evaporate, whether you're receiving them now or intend to start collecting checks after 2030.
Broken, but not broke
Even if the trust funds run out of money, that doesn't mean Social Security will simply stop issuing payments to its beneficiaries then. It simply means these payouts will be reduced by 20% to 25% of their initially projected figures, because that's the shortfall from the payroll taxes and other revenue sources that go toward paying benefits.
Obviously, that's not 100% of what you're due. But something is better than nothing, and most of what you're owed will still be passed along.
It was never going to make you rich, anyway
Moreover, Social Security was never meant to be the sole provider of income for retirement by itself. Depending on the sort of wages you earn while working, Social Security typically replaces between 40% and 75% of your income. That's why the average monthly Social Security check in 2023 should be just a tad over $1,800.
The rest of any money you may need in retirement is meant to come from your own retirement savings and -- for some folks -- pensions.
Image source: Getty Images.
If you're successful in generating retirement income on your own, then Social Security becomes a useful supplement, with the typical recipient seeing a boost of roughly $1,800 in today's dollars. Assuming Social Security stumbles into the worst-case scenario and payments must be reduced, you'd still be banking on the order of $1,300 worth of Social Security checks each and every month -- assuming you're an average earner and saver. For some people, that will still be enough to let them live comfortably.
Help is on the way
It's also possible something could happen in the meantime to stave off the reduction of Social Security payments. In fact, it's very likely several measures will be taken to help future retirees.
One of these measures is the Consolidated Appropriations Act for 2023, which is awaiting President Biden's signature. The legislation includes a provision called SECURE 2.0, which, among other things, offers certain lower-income workers government-matched contributions to a retirement account. The law would also raise the cap on IRA contribution limits for older workers, and it would make enrollment in a retirement plan the default option for most employers' workers.
That's not the only legislation being kicked around with the goal of helping people build better retirements. Sen. Mazie Hirono (D-Hawaii) and Reps. Ted Deutch (D-Fla.) and Angie Craig (D-Minn.) are all floating the idea of raising the limit on the income taxed to fund Social Security from last year's $147,000 to $250,000. It's believed such a plan could keep the Social Security program running smoothly for another 74 years.
This is just a sampling of all the possibilities that could come to fruition in an effort to fix the program's woes. Certainly, other ideas will surface in the meantime, with some of them likely to be implemented.
Stay cool
The point is, don't panic just yet. The Social Security Administration certainly isn't as flush with cash as it would like to be. It's not doomed, though. It just needs some assistance.
In the meantime, all investors should check out the My Social Security website to get a rough idea of their projected Social Security payments upon retirement. More than that, though, all investors should revisit their current retirement savings plan, or start one if you haven't yet. While it would be nice to not have to count on Social Security at all in your golden years, knowing it will at least supplement your self-made retirement income means you don't have to take crazy risks in an effort to fully fund your post-work life.
