Should You Protect Against Social Security's Future Lack of Funds?

Ask Rusty – Future Retiree Worried About Social Security's Future

Dear Rusty: I keep reading that the SSA will only be able to pay out 75% of benefits come 2033. If congress were to do nothing and this reduction in benefits occurred, would seniors already collecting benefits in 2033 have their benefits reduced or would it only be those who have not begun to collect have their future benefits reduced? I will be collecting my benefits no later than 2027 but my wife will not reach full retirement age until 2033 and we are looking for information on whether we need to adjust savings now to account for mine or my wife's possible reduction in benefits. Signed: Worried Senior

Dear Worried Senior: If Congress does nothing to prevent Social Security's reserves from depletion, Social Security – by law - will only be able to pay out benefits equal to income, which is estimated to be about 23% to 25% short of what will be needed to pay full benefits starting in 2033. That would mean everyone who is already receiving monthly Social Security benefits would get a payment 23% to 25% less than they were previously receiving. And without reform, new beneficiaries would get benefits similarly reduced.

The action needed to prevent those cuts from happening resides with Congress, and any program reform they enact would likely only affect those who are not yet collecting. Whether or how that would affect you and your wife as future SS beneficiaries depends on the scope of reform Congress will enact which, of course, is not yet known. That uncertainty, itself, is reason enough to bolster your savings for your future retirement.

The probability of Congress allowing the Trust Funds to be depleted, thus necessitating an across the board cut in everyone's benefit is, in my opinion, slim (it would be political suicide). Congress already knows how to fix Social Security's financial woes – they just currently lack the bipartisanship and political fortitude to do so. And it's doubtful any Social Security reform will happen this election year - rather, the opposing sides will likely just sling accusations at each other in 2024. But rest assured that both sides of Congress are acutely aware that reform of the Social Security program is needed soon, and we are already seeing signs that progress on reform may be forthcoming (but not until after the 2024 elections).

Congress is notorious for waiting until the last possible moment to act, and I don't suggest you alter your Social Security claiming strategy based on the unknown. But building a bigger nest egg for retirement is always a prudent goal. Also, calling your Congressional Representative to endorse needed Social Security reform which ensures your future benefits will not be cut would be a good move.

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This article is intended for information purposes only and does not represent legal or financial guidance. It presents the opinions and interpretations of the AMAC Foundation's staff, trained and accredited by the National Social Security Association (NSSA). NSSA and the AMAC Foundation and its staff are not affiliated with or endorsed by the Social Security Administration or any other governmental entity. To submit a question, visit our website (amacfoundation.org/programs/social-security-advisory) or email us at ssadvisor@amacfoundation.org.

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