Social Security provides an important foundation for most Americans' retirement plans. Unfortunately, that foundation is crumbling. Social Security's trustees just reported that the trust funds that support the program's payments are on a trajectory to be emptied by 2033, less than 20 years from now. Absent a change to the law, when the trust funds empty, the average benefit check will be cut by roughly 23%.

If you expect to be alive and eligible for Social Security when those cuts are anticipated, you still have time to make up for the shortfall. But you'd better start now, because the longer you wait, the more expensive and difficult it will be.

Say what?
Unless the law changes, Social Security can only pay benefits based on what it collects from its payroll taxes and its trust funds. The chart below shows how payable benefits will drop precipitously when the trust funds empty.

Source: 2014 Social Security Trustees Report. Orange oval added by author for emphasis.

Chances are decent that Congress will "patch" Social Security before then, as it has in the past, but there are no guarantees until the votes are counted and the law signed. Even if you expect another patch, it's still a good idea to invest to make up the gap anyway. More money in your pocket from investing will lead to either a more comfortable retirement for you or more chances to be generous to those you care for.

With a few simple steps, you can figure out how to cover your own Social Security gap.

Step No. 1: Figure out your estimated benefit level
Social Security has an excellent estimate of what benefit level you can expect from the program if you're not already collecting. To see it, follow this link to create a Social Security online account, and then look for "Your Social Security Statement." There will be a "Your Estimated Benefits" section in that statement that looks something like this:

Source: Social Security's online sample statement. Orange oval added by author for emphasis.

Step No. 2: Figure out your amount at risk
From your statement, pick the retirement benefit that most closely matches your planned retirement age and multiply that amount by the percentage of cuts you expect when the Trust Fund empties. That number is approximately the present value of your estimated monthly shortfall. Adjust that for inflation to estimate the monthly gap you'll have to cover on your own.

Here's an example:

  • Estimated retirement benefit: $1,680/month
  • Estimated shortfall (assuming cuts of 23%): $1,680/month x 0.23 = $386.40/month
  • Years until shortfall hits: 19
  • Estimated inflation rate: 3% annually
  • Future monthly gap to cover: $386.40/month x (1.03 ^19) = $677.55/month

Step No. 3: Estimate how long you'll need that cash
If you're not eligible for Social Security until around 2033 or later, then you can reasonably expect to deal with the gap for a long time, so you should plan to make up for that shortfall. A famous report in retirement planning circles called the "Trinity Study" suggests that you're unlikely to outlive your money in a 30 year-long retirement if you:

  • Have a decently diversified portfolio.
  • Withdraw no more than 4% of your initial retirement balance your first year.
  • Increase your withdrawals by the inflation rate each year.

That study led to the shorthand estimate known as the 4% rule, which is based on following that withdrawal and spending pattern. It's not perfect, but it's a great starting point if you expect a long retirement. If you're using the 4% rule as your guide, you'll need about 25 times your first year's expected coverage gap.

Continuing the same example from Step No. 2:

  • $677.55/month x 12 months/year = $8,130.60/year
  • $8,130.60/year x 25 years = $203,265

If you don't expect to live 30 years (or more) after the Trust Funds empty, then you may be able to scale back your savings target, but remember that none of us truly know when our time is up.

Step No. 4: Invest to cover your gap
Once you have a target amount in mind, you can estimate how much you'll need to save to reach that goal. The table below shows various amounts you'd need to save each month over the next 19 years, depending on your rate of return and total savings goal.

Savings Goal

Monthly Savings Required, Assuming...

8% Annual Returns

6% Annual Returns

4% Annual Returns

2% Annual Returns
















Source: Author's calculations. Assumes 19 years of monthly investments and smooth compounding.

There are no guarantees in the market, but even 8% annual returns over time are in the realm of what has been achieved in broad stock indexes like the S&P 500.

Step No. 5: Enjoy your retirement
With this money saved up, you'll be far better able to cover the payment gap created when Social Security's Trust Funds empty. And remember, if Social Security's payments don't drop, you can use the money to:

  • Retire earlier.
  • Enhance your retirement lifestyle.
  • Give more generous gifts to family, friends, or charities.

In any case, if you plan for the impending benefit cuts, you'll be far less likely to wind up short on cash during your golden years.