For millions of older Americans, Social Security provides vital financial support in retirement. However, the program’s reliability has come under scrutiny in recent years and it may not be as dependable as it once was. As you’re planning for retirement or already retired, there are some hard truths to consider to ensure you can be financially stable.
1. Benefits Decrease in Value Over Time
While Social Security was never intended to be a person’s only source of retirement income, with rising inflation there is a risk that future benefits may not go as far.
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Cost-of-living adjustments (COLAs) are paid to Social Security beneficiaries each year to help keep up with increased costs. However, these adjustments have fallen behind inflation rates and Social Security benefits have already lost an estimated 40% of their buying power since 2000, according to The Senior Citizens League. If inflation rises further and this trend continues, your benefits may not offer as much purchasing power in the future as they do now.
2. Cuts in Benefits Are Possible
Besides inflation, Social Security faces a cash shortage as the primary source of funding for the program is payroll taxes. In recent years, taxes have not covered benefits payments and as a temporary solution, the Social Security Administration (SSA) has used its trust funds. However, the SSA projects that both trust funds will be depleted by 2034 and if nothing changes, taxes will only cover around 80% of future benefits. This means retirees could face a 20% benefit cut if Congress fails to secure a more permanent solution.
3. Potential Lawmaker Solutions May Harm Retirees
Congress has been debating potential solutions to Social Security’s cash shortage, but some proposed solutions, such as increasing the full retirement age (FRA) or lowering benefits for higher earners, may reduce the amount paid out to beneficiaries. While there are other solutions that would not hurt retirees, Congress has yet to decide on a course of action. As the 2034 deadline approaches, pressure will grow on lawmakers to find a permanent solution.
Protecting Your Retirement Income
While there is little you can do to alter the course of the Social Security program, you can decrease your reliance on benefits by ramping up your personal savings. You can also consider delaying your Social Security claims, which can increase your payments significantly. Waiting until age 70 when your FRA is 67 means you’ll collect an extra 24% of your full benefit amount. If Social Security does cut benefits or lose value, this bonus payment can help cushion the blow. Take action sooner rather than later to be more financially secure as you approach retirement.
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