It's no secret that Social Security has been struggling in recent years. Many older adults are concerned that the program is on the verge of bankruptcy or that benefits are going away, which could be devastating to those who rely heavily on their monthly checks.
While Social Security is facing its fair share of problems, the situation isn't as dire as many people believe. There are two pieces of bad news you need to have on your radar, as well as one positive thing to keep in mind.
The bad news:
The trust funds are running out
The Social Security Administration (SSA) relies primarily on payroll taxes to fund benefits. Current workers pay into the program through taxes, and then that money is paid out to today's beneficiaries.
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In recent years, however, the money coming in from taxes hasn't been enough to fully fund benefits. As a temporary fix, the SSA has been dipping into its trust funds to cover the deficit and avoid cutting benefits.
But those trust funds are starting to run out, and according to the SSA Board of Trustees' latest estimates, they'll be depleted by around 2034. At that point, the SSA will need to rely on taxes and other sources of income to fund benefits, and those income sources will only be enough to cover around 80% of projected payments.
In other words, if nothing changes over the next decade or so, benefits could be cut by up to 20% by 2034.
Social Security is losing buying power
A separate issue plaguing Social Security is its struggle to keep up with rising inflation.
Most years, retirees receive a cost-of-living adjustment (COLA) to help their monthly payments keep up with increasing costs. However, these annual COLAs (including the whopping 8.7% raise beneficiaries received in 2023) have still been outpaced by inflation.
As a result, benefits today don't go nearly as far as they used to. In fact, Social Security benefits have lost around 40% of their buying power since 2000, according to a 2022 report from the Senior Citizens League.
If this trend continues, Social Security may be much less reliable in the coming decades -- which is especially concerning for those who will be depending on their benefits as a major source of income.
The good news:
Benefits aren't going away
Despite the troubling rumors, Social Security is not going bankrupt. As long as workers continue paying payroll taxes, there will always be at least some money to pay out in benefits. While the program may not be as dependable as it once was, it's still a reliable source of income to an extent.
There are also steps you can take to help combat potential benefit cuts and loss of buying power, including:
- Delay claiming benefits: For every month you delay claiming benefits past age 62, you'll receive larger payments. By waiting until age 70, you'll receive your full benefit amount plus a bonus of at least 24% per month. These adjustments are permanent, and they can go a long way if benefits face cuts in the future.
- Take advantage of other benefits: If you're married, divorced, or widowed, you could be entitled to spousal, divorce, or survivors benefits, respectively. The average spousal/divorce benefit amount is nearly $900 per month, as of July 2023, while the average non-disabled widow(er) receives more than $1,700 per month in survivors benefits.
- Boost your savings: If you can swing it, it's also worthwhile to beef up your savings as much as possible right now. If benefit cuts become a reality or if Social Security continues losing buying power, you may need to rely more heavily on other sources of income in the coming decades.
Social Security may not be as healthy as it once was, but it's not going away. By staying aware of the program's shortfalls, you can take steps to keep your retirement safe no matter what happens with your benefits in the future.
