Social Security is supposed to provide a source of guaranteed income for seniors. But too often, it's also a source of major anxiety, especially for those who struggle to save on their own for retirement. Some concern for the program is definitely warranted, but it can easily get blown out of proportion.
This happens more often than you think. A recent Transamerica survey found that more than 7 in 10 workers are still stressing about a Social Security myth that's been pretty thoroughly debunked. Here's the real story.
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Social Security's future isn't as dire as many think
I won't sugarcoat it: Social Security isn't in good shape. As more and more baby boomers retire and apply for benefits, the Social Security Administration has to pay out more and more. And since subsequent generations have been smaller, there are fewer workers left behind to pay into the program. So the government has had to increasingly rely on its trust funds to help make up for the shortfall, and that can't last forever.
Eventually, the trust funds will be depleted. The latest Social Security Trustees Report put this date around 2035. But that report came out in June 2022 -- four months before the government announced its record 8.7% cost-of-living adjustment (COLA) for 2023.
This benefit boost helps seniors struggling with inflation in the short term, but it's possible that it could move up the deadline for trust-fund depletion. It'll be a few more months until the next Trustees Report gives us updated estimates on the COLA's long-term effect on the program.
Whether the estimated depletion date remains at 2035 or moves up, it's not a great situation. Without some sort of government intervention, benefits would shrink by 20% immediately once the trust funds were used up and then they'd gradually decline by another 6% between 2035 and 2096. That would be devastating to the millions of seniors who rely upon Social Security as one of their primary sources of retirement income.
But here's the part that most people miss: Even in this worst-case scenario, Social Security is still going to be around in some form. And a lot of people don't seem to realize that. The Transamerica survey found that approximately 7 in 10 full- and part-time workers believe that Social Security isn't going to be around for them when they retire. And that's just not true.
But don't get too optimistic
No matter how young you are, you can count on Social Security checks in retirement if you've worked long enough to qualify. But how much you'll get is still up in the air.
It depends a lot on how the government decides to handle the impending shortfall. Politicians on both sides of the aisle recognize this is an issue in need of solving, but so far, they haven't been able to come together on any long-term solutions.
Many have tossed ideas around, including raising the full retirement age (FRA) -- the age at which workers qualify for their full benefit based on their work history -- or raising the ceiling on income subject to Social Security taxes (currently $160,200 in 2023). It's also possible that the government will raise the Social Security tax rate on workers, and more seniors will likely begin to incur Social Security benefit taxes as average check amounts continue to rise.
The final solution might involve a combination of strategies. No one knows at this point. All you can do is take steps to better your financial situation. Increasing your income today will help you maximize your Social Security benefit in the future. It will also free up more cash you can set aside for retirement.
Delaying Social Security -- and possibly delaying retirement, as well -- could also help. Waiting to claim Social Security gradually increases the size of your checks until you reach your maximum benefit at 70. And delaying retirement means you'll be able to cover all your expenses with a smaller nest egg.
Everyone's financial situation and retirement goals are different, so you have to think about what's the best strategy for you. But you don't need to plan for a retirement without Social Security.
If you're really concerned, plan for checks that are 20% to 25% smaller than what you think you're entitled to, based on the current Social Security rules. And be ready to adjust your retirement plan if the government makes any major changes to the program.
