The Truth About Social Security: Are Your Benefits at Risk?

Social Security has been a safety net for millions of Americans, but it’s facing significant challenges that could affect the benefits you’re counting on. Whether you’re planning for retirement or already receiving benefits, understanding what’s happening with Social Security is crucial for securing your financial future.

The Problem at Hand

According to the 2023 Social Security Trustees Report, the Old-Age and Survivors Insurance (OASI) Trust Fund might run out by 2033. If that happens, payroll taxes will only cover about 77% of the promised benefits.

Alicia Munnell, who heads up the Center for Retirement Research at Boston College, puts it plainly: “The prospect of a 23-percent benefit cut only 10 years away should focus our attention on restoring balance to the program.” In other words, if we don’t make some changes soon, everyone’s Social Security checks could get a lot smaller.

What Could This Mean for You? If no action is taken, benefits could be cut by about 23%. For example, if you’re currently receiving the average monthly benefit of $1,827, a 23% cut would bring that down to $1,407. That’s $5,040 less each year.

The Root of the Issue

So, what’s causing these financial strains? Charles Blahous, a former trustee for Social Security and Medicare, explains: “The fundamental problem underlying Social Security’s finances is not primarily a revenue deficiency; rather, it’s that its rate of automatic cost growth is persistently faster than the growth of its tax base in workers’ earnings and indeed faster than the growth of GDP.”

In simpler terms, Social Security’s costs are growing faster than the money coming in from workers’ paychecks and the overall economy. This imbalance needs to be addressed, whether through increasing revenue, cutting costs, or a combination of both.

Proposed Solutions and Their Implications

One commonly discussed solution is raising the retirement age. However, this idea comes with significant drawbacks, particularly for those who rely heavily on Social Security benefits. Kathleen Romig, a Senior Policy Analyst at the Center on Budget and Policy Priorities, warns, “Raising the retirement age cuts benefits for all new retirees — that is, those claiming Social Security benefits for the first time. These cuts could be deep, and they would fall hardest on lower- and middle-income beneficiaries because they rely most heavily on Social Security benefits.”

Other proposed solutions include:

• Increasing Payroll Taxes: This could involve raising the tax rate or lifting the cap on taxable earnings, ensuring more money flows into the system.
• Adjusting the Benefit Formula: This might mean reducing benefits for higher-income retirees, helping to preserve funds for those who need them most.
• Expanding Investment Options: Some suggest allowing the trust fund to invest in a more diverse portfolio beyond government bonds, potentially boosting returns.

Learning from Other Countries

Social Security isn’t the only system facing these challenges. Many developed countries are grappling with similar issues:

• Japan: Has raised its retirement age and adjusted its benefit formula to cope with an aging population.
• Australia: Uses a mandatory private savings system alongside its public pension, providing multiple layers of security.
• Sweden: Implemented an automatic stabilizer that adjusts benefits based on economic and demographic factors, ensuring long-term sustainability.

These approaches offer valuable insights for U.S. policymakers as they consider potential reforms.

What You Can Do

Given the uncertainty around Social Security, it’s wise to take steps now to protect your retirement:

1. Build Other Income Sources: Don’t rely solely on Social Security. Increase your savings, investments, and retirement accounts to create a financial cushion.
2. Plan for Different Scenarios: Work with a financial advisor like Barbara Swiatek to develop a flexible plan that can adapt to various outcomes, including potential Social Security cuts.
3. Consider Delaying Benefits: If possible, waiting to claim Social Security can increase your monthly benefit, potentially offsetting future cuts.

Age-Specific Advice

• 20s-30s: Focus on building your own retirement savings. Consider Social Security as a supplement, not your primary retirement plan.
• 40s-50s: Review your retirement strategy. Adjust your savings and investments to prepare for potential benefit reductions.
• 60 and Older: Carefully consider your claiming strategy. Delaying benefits, if possible, can provide a buffer against future cuts.

Take Action Now to Secure Your Future

Don’t leave your retirement to chance. The future of Social Security is uncertain, but you can take control of your financial security today. Start by reviewing your retirement strategy—boost your savings, diversify your income streams, and consider the best time to claim your benefits. If you’re not sure where to begin, call us at 719.597.2179. We’d be glad to help you with these changes and create a plan that protects your future. The sooner you act, the better prepared you’ll be to handle whatever comes next.

Final Thoughts

Social Security faces serious challenges, but by staying informed and being proactive, you can better prepare for whatever changes might come. It’s all about ensuring you have a solid plan in place to secure your financial future, no matter how Social Security evolves.

---

Sources

• Munnell, Alicia. The prospect of a 23-percent benefit cut only 10 years away should focus our attention on restoring balance to the program. Center for Retirement Research, Boston College. Link.
• Blahous, Charles. The fundamental problem underlying Social Security’s finances is not primarily a revenue deficiency; rather, it’s that its rate of automatic cost growth is persistently faster than the growth of its tax base in workers’ earnings and indeed faster than the growth of GDP. Mercatus Center, George Mason University. Link.
• Romig, Kathleen. Raising the retirement age cuts benefits for all new retirees — that is, those claiming Social Security benefits for the first time. Center on Budget and Policy Priorities. Link.