When it comes to Social Security, many people who are planning for retirement often worry if their benefits will still be available by the time they stop working. Surveys consistently reveal that Americans generally have a dim view regarding the program’s longevity.
For instance, a 2024 survey conducted by the Nationwide Retirement Institute found a whopping 72% of adults are anxious that Social Security might deplete its funds during their lifetime. In a similar vein, an October Bankrate survey highlighted that only a scant 6% of Americans are “not at all concerned” about their benefits being paid by the time they retire. Generation X, who are currently aged between 44 and 59 and thus nearing retirement, are the most worried about the program’s endurance, according to Bankrate.
In other financial news: about 30 million could qualify for the IRS’s free Direct File program, President Biden recently forgave student loans for 150,000 more borrowers, and reducing alcohol consumption during ‘dry January’ can significantly increase savings.
Recently, President Joe Biden signed the Social Security Fairness Act into law, a move that will boost Social Security benefits for nearly 3 million people also receiving public pensions. However, this law didn’t secure any new funds to cover these additional payments, which means Social Security now faces a reduced timeframe in which it can pay full benefits.
As of 2024, trustees of Social Security estimated the program’s funds could sustain full benefits until 2035, at which point only 83% of benefits could be paid. The Senate’s Budget Office projects that the new legislative changes may move this date up by six months.
“There aren’t any new funding sources introduced here, which means that, logically, depletion will occur sooner,” remarked David Blanchett, head of retirement research at PGIM DC Solutions. To tackle the program’s budget issue, Congress may resort to measures such as increasing taxes, cutting benefits, or applying a mix of both.
These anticipated changes might affect when people choose to claim their benefits, particularly for those impacted by the new legislation, as well as for all other beneficiaries.
Now is a good time to ‘stress-test’ your plan.
Social Security retirement benefits are calculated based on a worker’s earnings history and the age they begin claiming benefits. People can claim starting at age 62, but doing so will result in permanently reduced benefits. If retirees wait until their full retirement age—ranging from 66 to 67, depending on their birth year—they’ll receive their full entitled benefits. Delaying even further, until age 70, could increase their benefits by 8% for each year they hold off beyond full retirement age.
Experts advise that even if future benefit cuts occur, aiming for a higher benefit amount is worthwhile, provided one can afford to delay the claim.
Currently, people nearing or already in retirement might not face immediate changes. “It’s highly unlikely they’ll reduce benefits for anyone already receiving them,” said Blanchett. However, for future recipients, the generosity of Social Security could diminish over the next two or three decades, influenced by varying factors like immigration and birth rates. Blanchett emphasized the likelihood that Social Security won’t disappear altogether, but prudently, one should contemplate how obtaining just 80% of today’s benefits—or even just half for dual-income families—could impact a retirement plan.
Social Security is intended to be just one component of a retirement income strategy. If cuts transpires, it’s beneficial to have additional savings or assets to fall back on. “The surefire way to safeguard against all these risks and uncertainties is to save more so you’re prepared for whatever comes your way,” Blanchett suggested.
Joe Elsasser, a certified financial planner and president of Covisum, a Social Security claiming software provider, advises conducting a “stress test” on retirement plans to factor in possible benefit reductions. “If you find that a potential cut could threaten your lifestyle, consider trimming expenses now rather than having to make more significant reductions later,” he advised.
If the new law impacts you, it might be time to reassess your plan.
As of now, more than 72.5 million people receive Social Security and Supplemental Security Income benefits, agency data shows. Of the beneficiary pool, nearly 3 million individuals are expected to gain from the Social Security Fairness Act, although this group represents only a small fraction of the total recipients.
The new law removes certain provisions—namely the Windfall Elimination Provision (WEP) and Government Pension Offset (GPO)—which previously reduced Social Security benefits for workers holding pensions or disability benefits from positions where Social Security payroll taxes weren’t collected.
Considering these changes affect entire families, the new provisions could indirectly benefit about twice the number of individuals directly impacted, once accounting for spouses and children, according to David Freitag, a financial planning consultant and Social Security expert with MassMutual.
The benefit difference could be profound. For example, a couple facing a retirement funding gap due to the WEP and GPO might now enjoy a surplus exceeding $300,000 in lifetime savings as these offsets are removed, based on MassMutual’s projections. While the extent of changes varies individually and not all beneficiaries might see such a significant increase, even an additional $300 a month, adjusted annually for inflation, could profoundly influence retirement living conditions, Freitag noted.
“If you’re affected by this, it’s advisable to reassess your retirement strategy,” Freitag encouraged.
