Social Security is a major part of retirement planning for millions of Americans, giving them important financial support. But, there are growing concerns about whether Social Security can keep doing this in the long run. According to the 2024 Board of Trustees report, the main trust funds that pay Social Security benefits might run out of money by 2035.

If nothing changes in the system, starting in 2035, the Social Security Administration won’t be able to pay full benefits on time. However, this doesn't mean you won't get any benefits at all; you would likely still receive about three-quarters of your current benefit. The reason for this shortfall is simple: More people are claiming benefits, while the money coming in from working-age people through payroll taxes is expected to stay the same.

What Can You Do?

Take charge of your own retirement

It’s more important than ever to have your own retirement income plan. Once you stop working, how will you pay for your lifestyle and enjoy the retirement you’ve dreamed of? Fortunately, there are many things you can do today to prepare.

 

1. Plan for a 25% Reduction in Social Security Benefits: Make sure your retirement income plan can handle getting 25% less from Social Security.

2. Create a Cash Flow Strategy: Figure out how you will get the money you need to spend each month.

3. Have an Emergency Fund: Save money for unexpected expenses.

4. Invest to Beat Inflation: Make sure your investments grow faster than inflation. Social Security cost-of-living adjustments have averaged 2.7% since 2000, while current inflation is 3.3%.

5. Ask for Help: Let me know how I can help!

 

Maximize your Social Security benefits

No matter how old you are now, you’ll probably still get some Social Security benefits, so make sure you know the rules and how to get the most money possible. Don’t miss out on any benefits you’re entitled to. Claiming benefits before you reach full retirement age will permanently reduce your benefits. On the other hand, if you wait to claim until you’re 70, your monthly benefits will increase by about 8% each year you delay, up to age 70.

By planning ahead and understanding how Social Security works, you can better prepare for your retirement and ensure you have the financial resources you need.

 

What Can Congress Do to Restore Solvency of Social Security?

To ensure the long-term solvency of Social Security, Congress has several options. These potential solutions aim to balance the program's income and expenses, ensuring that it can continue to provide benefits to future retirees.

1. Increase Payroll Taxes

   - Raise the Payroll Tax Rate: Currently, employees and employers each pay 6.2% of wages up to a certain limit. Increasing this rate slightly could generate significant additional revenue.

   - Raise the Taxable Earnings Cap: As of now, only wages up to a certain amount are subject to Social Security taxes. Raising or eliminating this cap would mean higher earners contribute more.

2. Adjust Benefits:

   - Change the Benefit Formula: Modifying how benefits are calculated could reduce payouts for higher earners while protecting lower-income beneficiaries.

   - Raise the Full Retirement Age: Gradually increasing the age at which people can receive full benefits would reduce the total amount paid out over time.

3. Reduce Cost-of-Living Adjustments (COLA):

   - Adjust the COLA Calculation: Changing the formula used to calculate COLA could slow the growth of benefits, aligning them more closely with actual inflation rates.

4. Introduce Means Testing:

   - **Reduce Benefits for Higher-Income Retirees:** Implementing means testing would reduce or eliminate benefits for those with substantial income from other sources, targeting Social Security payments to those who need them most.

5. Diversify Investment of Trust Fund:

   - Invest in Equities: Allowing the Social Security trust fund to invest in the stock market could potentially yield higher returns compared to the current practice of investing solely in government bonds. However, this approach comes with increased risk.

6. Encourage Private Retirement Savings:

   - Incentivize Private Savings: Offering tax incentives or other benefits for individuals to save in private retirement accounts could reduce reliance on Social Security.

 

Balancing the Solutions

To restore solvency, Congress may need to implement a combination of these strategies. Balancing tax increases with benefit adjustments can help ensure that Social Security remains viable without placing undue burden on any single group. Additionally, encouraging private savings can help individuals better prepare for retirement, reducing the overall pressure on Social Security.

Importance of Legislative Action

Timely legislative action is crucial. The longer Congress waits to address these issues, the more drastic the required changes will be. By acting now, smaller adjustments can be made gradually, providing stability and predictability for future retirees.

Restoring the solvency of Social Security is essential to maintaining its role as a cornerstone of retirement security for millions of Americans. Through thoughtful, balanced reforms, Congress can ensure that Social Security continues to support future generations.