Social Security can make or break retirement for millions of Americans, so it pays to make the most of your monthly checks.
But the program may have some difficult times ahead, and it could affect your payments. If you're expecting to depend on Social Security in retirement, then it may be time for a reality check.
While nobody knows for certain what the future holds, the more time you can give yourself to prepare, the better. And there are three tough truths to start taking in now.
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1. Benefits alone may not be enough
Around 23% of workers expect Social Security to be their primary source of income in retirement, according to a 2022 survey from the Transamerica Center for Retirement Studies.
While it's not necessarily a bad thing to depend on your benefits to some degree, they were never designed to be a sole source of income. As of March 2023, the average retiree only collects around $1,800 per month in benefits, according to the Social Security Administration (SSA). For most people, that's hardly enough to live comfortably.
2. Social Security is losing buying power
Social Security benefits don't go as far as they used to thanks to decades of inflation. Despite annual cost-of-living adjustments (COLAs), benefits have not increased at the same rate as costs.
As a result, Social Security has lost around 40% of its buying power since 2000, according to a 2022 report from the Senior Citizens League. This problem could also continue to worsen over time, so even if you can afford to live on your benefits now, it may be more difficult later in retirement.
3. Cuts may be coming
Contrary to popular belief, Social Security is not going bankrupt. But it is facing a cash-shortage problem, which could potentially lead to benefit cuts within the next decade or so.
The SSA relies primarily on payroll taxes to fund benefits, but in recent years, the money coming in from taxes hasn't been enough to cover all benefits. As a result, the SSA has been dipping into its trust funds to cover the deficit.
According to the SSA Board of Trustees' latest estimate, those trust funds are expected to be depleted by 2034 at which point the continued income would only be enough to cover around 80% of benefits. In other words, if Congress isn't able to come up with a solution before 2034, benefits could face cuts of up to 20%.
What you can do to prepare
There's not much you can do to change the course of Social Security, but you can take steps to reduce your dependence on it.
While it's easier said than done, increasing your savings can provide a safety net if Social Security proves to be an unreliable source of income. The more robust your retirement fund, the less you'll need to worry about how Social Security's future may affect you.
Another option, though, is to find ways to increase your monthly checks. For example, if you delay claiming Social Security until age 70, you'll receive your full benefit amount plus at least 24% extra each month. If your benefits lose buying power or face cuts, those larger checks can help cushion the blow.
Social Security benefits can be a substantial source of income in retirement, but they may not go as far as you expect. By taking steps now to boost your savings, you can avoid getting caught by surprise in retirement.
