Millions of older Americans rely on Social Security to make ends meet in retirement, but the program has been facing financial problems for years. Contrary to what many people believe, the program isn't going bankrupt. However, there could be big changes on the horizon -- which may affect your monthly checks.
It's unclear exactly what the future holds for Social Security. But regardless of whether you're already retired or planning on retiring in the near future, there are a few hard truths to start preparing for now.
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1. Benefit cuts could be looming
Social Security may not be going bankrupt, but it's running at a deficit. The cash coming in from payroll taxes (the program's primary source of income) isn't enough to fully fund benefits.
As a result, the Social Security Administration (SSA) has been pulling money from its trust funds to bridge the gap. Because of these trust funds, the SSA has managed to avoid benefit cuts so far. But that money won't last forever.
According to the SSA Board of Trustees' latest estimates, the trust funds will be depleted by around 2034. When that happens, the program's income sources will only be enough to cover around 80% of benefits -- so your monthly checks could potentially be slashed by up to 20% by 2034.
2. Social Security is losing buying power
In addition to Social Security's cash shortfall, benefits have also consistently been outpaced by inflation.
Most years, beneficiaries receive a cost-of-living adjustment (COLA), which is designed to help Social Security maintain buying power. However, even the recent historically large COLAs haven't managed to keep up with surging inflation. Since 2000, Social Security has lost a whopping 40% of its buying power, according to a 2022 report from The Senior Citizens League.
This is particularly concerning for those who have little to no savings. If this trend continues, benefits will not go nearly as far as they do now -- making retirement even more unaffordable for many.
3. Big changes could be inevitable
The good news is that lawmakers are aware of the problems facing Social Security and are debating over the best way to solve them. The bad news, though, is that these solutions could also affect your benefits.
Some of the solutions involve boosting Social Security's funding, such as increasing the payroll tax. Another proposal is to raise the wage cap, which would make income over $400,000 per year subject to Social Security taxes.
There are other options, though, that would directly affect retirees. These proposals include reducing benefits for high earners and raising the full retirement age -- which would reduce retirees' lifetime benefit amounts.
Raising the wage cap is by far the most effective solution, but even that would only reduce Social Security's cash shortfall by around 61%, according to research from the University of Maryland. This means that Congress may need to implement multiple solutions to fully solve the problem, resulting in some potentially big changes to Social Security down the road.
How reliable will Social Security be in the future?
Social Security may be shaky right now, but it's not going away entirely. As long as workers continue paying payroll taxes, there will always be at least some money to pay out in benefits.
Just how far those benefits will go, though, is the main concern for retirees. Between potential benefit cuts, loss of buying power, and changes to the program, your monthly checks may not be as reliable as they once were.
You may not be able to control the future of Social Security, but you can start preparing. By increasing your savings, keeping realistic expectations about Social Security in retirement, and staying up to date on the program and its changes, you can better protect your financial future.
