If you're expecting to rely on Social Security in retirement, you're not alone. Around 41% of baby boomers say that Social Security will be their primary source of income in retirement, according to a 2023 report from the Transamerica Center for Retirement Studies.
While there's nothing necessarily wrong with depending on Social Security to some extent, making it your primary source of income can be risky. The program has some major challenges ahead, and there's a chance your benefits may not be nearly as reliable as they are now. Here's what you need to know.
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How safe is Social Security?
Social Security has been facing a cash shortfall for years, and many workers and retirees are concerned that the program might be going bankrupt. The good news is that Social Security is not running out of money entirely or going away. The bad news, though, is that benefit cuts could be looming.
The program relies primarily on payroll taxes to fund benefit payments. In recent years, however, the money coming in from taxes hasn't been enough to fully cover benefits. As a result, the Social Security Administration (SSA) has been dipping into its trust funds to bridge the gap.
Those trust funds only have so much cash, however. According to the SSA Board of Trustees' latest estimates, they will be depleted by around 2034 -- at which point taxes and other sources of income will only be enough to cover around 80% of benefits.
That could spell trouble for current and soon-to-be retirees. If Congress can't come up with a solution before 2034, benefits could potentially be slashed by around 20%.
One more problem the program is facing
Social Security's cash shortfall isn't its only issue. It's also quickly losing buying power, despite the fact that it's designed to avoid that problem.
Most years, beneficiaries will receive a cost-of-living adjustment (COLA) to account for changes in inflation over the past year. In theory, those COLAs should help Social Security keep up with rising costs so that benefits don't lose buying power over time.
In reality, though, the program hasn't effectively done that. Since 2000, Social Security has lost a whopping 40% of its buying power, according to a 2022 report from The Senior Citizens League. If this trend keeps up, benefits may be even less reliable in the coming decades.
This is concerning news for all beneficiaries, but it's especially troubling for those who are relying on Social Security as their primary source of income. Even if you can retire comfortably on Social Security now, that may not be the case in the future if benefits continue losing buying power.
What can you do to prepare?
There's not much you can do when it comes to Social Security's cash shortage or loss of buying power. But you can take steps to reduce your dependence on your benefits.
If you still have a few years left before retirement, now is the time to amp up your savings. Even if you can only save a little each month, the stronger your retirement fund, the less you'll need to worry about Social Security.
Delaying benefits is another option. If you wait until age 70 to start taking Social Security, you'll receive your full benefit amount plus at least 24% extra every month for the rest of your life. If benefits face cuts or lose more buying power, those larger payments could go a long way. As a bonus, if you also continue working until age 70, that can give you more time to boost your retirement savings.
Social Security isn't going away, and its problems aren't as dire as many people believe. However, relying too heavily on your benefits could potentially put your retirement at risk. By taking steps now to reduce your dependence on Social Security, you'll be as prepared as possible -- no matter what the future holds for the program.
