Social Security is a lifeline for millions of seniors. According to a 2023 survey from the Nationwide Retirement Institute, nearly one-quarter of adults aged 50 and older rely solely on their Social Security benefits for retirement income.
However, concerns about the future of the Social Security program have been growing due to a cash shortfall in recent years.
Image source: Getty Images.
The Nationwide survey found that around 75% of adults aged 50 and older worry that Social Security funding will run out in their lifetime. Additionally, 24% of adults across all age groups believe they won’t receive any benefits they’ve earned.
There is both good news and bad news about the future of Social Security. The good news is that the problem is not as severe as many think. The bad news is that there are still serious issues that could impact benefits.
When will Social Security run out of money?
There have been claims that the Social Security program is running out of funding and will go bankrupt in the coming years. While there is a financial shortfall, it’s not a complete depletion of funds.
Social Security benefits are primarily funded through payroll taxes paid by current workers. As long as these taxes continue to be paid, there will always be some money available to pay benefits.
However, in recent years, taxes haven’t been enough to fully fund benefits, resulting in a deficit. To bridge this gap, the Social Security Administration (SSA) has been using its trust funds. This has prevented benefit cuts so far.
But according to the SSA’s estimates, these trust funds are projected to run out by around 2034. After that, the funding from taxes and other income sources will only cover approximately 80% of future benefits.
In other words, while Social Security won’t completely run out of money, benefits could be reduced by up to 20% by 2034 if a solution isn’t found before then.
One more major hurdle
The cash shortfall is not the only challenge facing the program. Another hurdle is the loss of buying power for Social Security benefits over the years.
Although Social Security is designed to keep up with inflation through cost-of-living adjustments (COLAs), these adjustments have consistently lagged behind actual inflation rates. A 2022 report from The Senior Citizens League shows that Social Security has lost 40% of its buying power since 2000.
This means that benefits no longer stretch as far as they used to, and if this trend continues, Social Security may become even less reliable in the future. If you rely on monthly benefits in retirement, it may be wise to have a backup plan.
Steps you can take to protect your retirement
Increasing your savings is the most reliable way to reduce dependence on Social Security. While this may be challenging, saving even a small amount now can significantly help by the time you retire.
Another option is to delay claiming Social Security. Waiting until age 70 can increase your monthly benefits by at least 24% on top of your full benefit amount. This could amount to hundreds of dollars extra per month, and the increase is permanent. If benefit cuts or continued loss of buying power are likely, this boost can provide some cushion.
The future of Social Security remains uncertain. However, staying informed about program changes and taking proactive steps now can help prepare you for whatever may happen.
The $21,756 Social Security bonus most retirees completely overlook
If you’re behind on your retirement savings, learning about “Social Security secrets” could boost your income. For instance, a simple trick could increase your annual payments by $21,756. Maximizing your Social Security benefits can provide peace of mind in retirement. Discover more about these strategies here.
The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
