Today's workers are pretty skeptical about Social Security's future. Only about half say they are at least somewhat confident the program will maintain its current value, according to a recent Employee Benefit Research Institute (EBRI) survey. But for retirees, it's a different story.
Nearly 7 in 10 retirees believe their future Social Security benefits will provide an equal value to their current benefits, the EBRI survey says. But this is one of those situations where being too optimistic could come back to bite them. Here's why.
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Social Security's buying power has been declining for decades
The average Social Security benefit has risen over the years, and it jumped quite a bit in 2023 thanks to the largest cost-of-living adjustment (COLA) in decades. But its buying power has actually decreased over time. The typical Social Security check today buys about 40% less than the average check in 2000, according to the Senior Citizens League.
This is due in part to high inflation, but many also believe that the way COLAs are calculated doesn't accurately reflect senior spending. Currently, COLAs are based on the Consumer Price Index for Urban and Wage Workers (CPI-W), but many think they should be based on the Consumer Price Index for the Elderly (CPI-E), which is a better representation of seniors' spending habits. Making this change would increase the COLAs seniors are eligible for by about 0.2% per year, leading to larger checks.
Despite this, Congress has no immediate plans to change the way COLAs are calculated, so Social Security's buying power will likely continue to diminish over time. And that's not even the biggest concern for those who rely heavily on their benefits.
Social Security has a decade left until insolvency
When the baby boomer generation began retiring, the number of Social Security beneficiaries skyrocketed, and fewer workers were left behind to pay into the program. This has put a huge financial strain on it. So far, it has managed to keep paying everyone what they're owed only by tapping its trust funds. But the latest estimates suggest these will be depleted by 2033.
Once this happens, the government will only be able to pay out about 80% of scheduled benefits; this will decline to about 74% of scheduled benefits by 2097.
But that may not happen. The government can still take steps to resolve this issue, either by finding ways to increase the program's revenue or by reducing benefits. It could also do a combination of both. Some proposals would leave current beneficiaries' checks untouched, but there's no way to know what the actual solution will look like.
Hope for the best, prepare for the worst
Because of the funding crisis, Social Security will likely look different in the future than it does today. And while we can hope the government finds a way to resolve the issue without hurting workers or seniors too much, we just have to wait and see.
If you hope to remain financially secure throughout your retirement, it's best to reduce your dependence on Social Security as much as possible. This is often easier said than done, especially for those who are already retired. But there are still some things you can do to diversify your retirement income.
Relying on personal savings is always an option if you have them. You could consider working full or part time in retirement as well. Those with extra properties could also try renting them out to make some extra cash.
Keep looking for any other ways to boost your retirement income, and watch for changes to Social Security over the next decade so you can adapt as necessary.
