As retirement becomes more and more expensive, it's more important than ever that retirees are prepared for those costs.
Social Security can go a long way in retirement, but it's no secret the program is facing its share of challenges. While most adults are expecting to rely on their benefits to some degree in retirement, many are underestimating just how big of a role Social Security will play throughout their senior years.
This may sound harmless on the surface, but it could be far costlier than it seems. Here's what you need to know about the future of Social Security.
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How much can you depend on your benefits?
In a 2023 poll from Gallup, workers who have not yet retired were asked how much they expect to rely on Social Security. Only 34% said they believe their benefits will be a major source of income in retirement, and 17% said they don't expect to depend on Social Security at all.
When current retirees were asked the same question, though, the numbers were a bit different. Nearly 60% said their benefits are a major source of income, and an additional 29% said it's a minor source of income. Only 10% of respondents said they don't depend on Social Security.
This has been a consistent trend over the last two decades, too. When Gallup asked this same question back in 2002, only 27% of workers expected Social Security to be a major source of retirement income. Meanwhile, a whopping 58% of retirees said their benefits actually were a major income source.
These figures suggest that many workers may be underestimating how heavily they'll rely on Social Security in retirement. Depending on your benefits isn't necessarily a bad thing. But with the future of the program still murky, Social Security may be even less reliable in the future -- which could spell trouble for your retirement.
The future of Social Security
To be clear, Social Security is not going away. There are plenty of rumors that the program is going bankrupt or that retirees will stop receiving benefits altogether. The truth is that while Social Security isn't on the verge of collapse, benefit cuts could potentially be on the horizon.
The Social Security Administration (SSA) relies primarily on payroll taxes to fund the program. Workers pay into the program through taxes, and that money is then paid out to current beneficiaries. In recent years, though, the program's income hasn't been enough to fully fund benefits.
To bridge the gap and avoid cuts, the SSA has been dipping into its trust funds. But those funds are expected to be depleted by 2034, according to the SSA Board of Trustees' latest estimates. When that happens, taxes and other sources of income are only expected to be enough to cover around 80% of future benefits.
Congress has been debating various ways to solve the problem, but nothing has been decided yet. If lawmakers can't implement a solution by 2034, benefits could potentially be slashed by 20%. And if Social Security ends up being a major source of income in retirement, those cuts could hurt.
What can you do right now?
There's not much you can do about the future of Social Security, but you can take steps to reduce your dependence on these benefits. Perhaps the most effective approach is to increase your savings. While that's often easier said than done, even small amounts can go a long way.
For example, say you can afford to contribute an extra $50 per month to your retirement fund while earning a modest 8% average annual return on your investments. At that rate, you'd have more than $27,000 after 20 years. It may not be enough to retire on, but every dollar counts in retirement.
Also, if you have access to a 401(k) with employer matching contributions, it's wise to take full advantage of it. The employer match can instantly double your savings with next to no effort on your part, and over time, it could increase your savings by tens of thousands of dollars or more.
Saving for retirement isn't easy, and many people may be overestimating how far their savings will go. While Social Security can be a great backup, it may not be as reliable as it once was. By keeping realistic expectations and doing your best to boost your savings, you can set yourself up for a more financially secure retirement.
