If you’re working, you’ve probably received a statement from the Social Security Administration showing how much you’ve paid into the system and how much you can expect to get when you’re eligible for benefits. But, let’s face it—Social Security seems to always be under threat. So, will Social Security still exist when you reach retirement age? And if it does, what can you expect?
Why is Social Security Under Threat?
The main issue with Social Security is simple: not enough money is being paid into it. There are a few reasons for this. First, birth rates are down, which means fewer people are entering the workforce to contribute. Meanwhile, our population is aging, which means more people are relying on Social Security benefits.
Add to that the economic challenges we face—unrestrained growth in some industries has put a strain on resources, and the environment isn’t exactly getting any healthier. In terms of maintaining a workforce to support Social Security, allowing more immigration could help, but that’s a hot-button political issue that often doesn’t get enough attention.
In short, the system isn’t sustainable in its current form unless adjustments are made. According to the 2022 Social Security Trustees report, unless changes are made, Social Security will start paying out reduced benefits (about 77% of the current amount) starting in 2034.
What’s Likely to Happen?
While we can’t predict the future, there are a few likely scenarios. The most probable fix is that the government will increase the amount of income that’s taxable for Social Security. Currently, the maximum amount subject to Social Security taxes is $147,000, and anything above that is untaxed. This cap might be raised, which would increase the funds flowing into the system.
But that doesn’t mean you should just sit back and wait for a solution. Even with these adjustments, it’s important to plan for the possibility that Social Security will be either reduced or delayed by the time you retire.
What Can You Do Now?
If you have years left before retirement, it’s best to approach your retirement planning as though Social Security may only be a small part of your income—if you get any at all. A good strategy is to delay taking Social Security payments until you’re 70. Not only will you maximize your benefits by waiting, but the age to start benefits may also increase over time.
Beyond that, take advantage of employer-sponsored retirement plans like a 401(k), and consider opening an IRA if you haven’t already. The earlier you start saving and investing, the more likely you are to build up a solid nest egg for retirement.
At the end of the day, Social Security should be seen as a bonus, not the foundation of your retirement income. It’s tough to live on Social Security alone, even if you qualify for the full entitlement.
To make sure you’re on track for a financially secure future, work with a CERTIFIED FINANCIAL PLANNER™ who can help you build a retirement plan that factors in all these uncertainties and sets you up for peace of mind.