Social Security is a lifeline for millions of older adults, but the program has its fair share of challenges.
Many Americans are concerned that the program is going bankrupt, and that benefits will be going away entirely. In fact, around 75% of U.S. adults age 50 and older say they're worried about Social Security running out of funding in their lifetime, according to a 2023 survey from the Nationwide Retirement Institute.
While Social Security is facing some big problems, the situation isn't as dire as many people believe. Here's the truth about the future of the program -- and how it will affect your benefits.
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The good news about Social Security
It's true that Social Security is facing a cash shortfall, but it's not running out of money entirely or going bankrupt.
The program relies primarily on payroll taxes to fund benefits. Today's workers pay into Social Security through taxes, and that money is then funneled out to current retirees via benefits. The problem, however, is that in recent years, the money from taxes hasn't been enough to fully fund benefits.
To bridge the gap, the Social Security Administration (SSA) has been tapping its trust funds. This has made it possible to avoid cutting benefits, but these trust funds will only last so long. According to the SSA Board of Trustees' latest estimates, the funds will be depleted by 2034, at which point the program will only have enough income to pay out around 80% of future benefits.
While this does mean that benefits could be slashed by up to 20% by 2034 if Congress doesn't find a way to increase Social Security's income, the program isn't going away. As long as workers continue paying taxes, there will always be at least some money to pay out in benefits.
The not-so-good news
The bad news about the future of Social Security is that it's becoming less and less dependable as a source of income for retirees.
Benefit cuts aside, the program has also faced a dramatic loss of buying power over the years. Social Security has struggled to keep up with inflation, despite annual cost-of-living adjustments (COLAs) designed to do just that.
Since 2000, Social Security has lost an estimated 40% of its buying power, according to a 2022 report from The Senior Citizens League. If this trend continues, your benefits may be even less reliable in the coming decades.
While this isn't good news for anyone, it's especially troubling for those who expect their benefits to be a major source of income in retirement. Around 21% of adults age 50 and older have no other retirement income outside of Social Security, the Nationwide survey found.
Even among those who do have savings, the median retirement account balance is just over $27,000, according to Vanguard's 2023 "How America Saves" report. It's already tough to make ends meet in retirement with little savings, but if Social Security continues losing buying power, it will be even more difficult.
What you can do to protect your retirement
You may not be able to control the future of Social Security, but you can take steps to protect your retirement.
Perhaps the best solution is to decrease your dependence on benefits by increasing your savings. It's unclear right now whether benefit cuts will happen or how much of a toll inflation will take on the program, but if the majority of your income is coming from your savings, you won't need to worry as much about the future.
Of course, this is easier said than done. But saving even a little more now can go a long way. For example, investing just $200 per month at a modest 8% average annual return would amount to roughly $65,000 after 15 years. It may not be enough to retire on by itself, but it can help cushion the blow if Social Security is less reliable in the future.
You could also consider delaying benefits. For every month you wait past age 62 to file (up to age 70), you'll receive more money per month. Delay until age 70, and you'll receive your full benefit amount plus at least 24% extra every month for the rest of your life.
Social Security may be facing some big challenges, but it doesn't have to spell trouble for your financial future. By staying aware of these developments, you can take steps to better protect your retirement -- no matter what happens with Social Security.
