With Social Security’s future uncertain, individuals should take steps now to build financial security, like contributing to retirement accounts, managing spending, and planning for different scenarios.
A new report from the Committee for a Responsible Federal Budget (CRFB) is raising concerns about the future of Social Security, and it’s something all future retirees should be paying attention to. Without changes to how the program is funded, benefits could be cut extensively in less than a decade.
Fact Box
- • Social Security was started in 1935:
Social Security was established as part of the New Deal to provide financial support for retirees and disabled workers.
- • Affects 1 in 4 Americans:
More than 65 million people rely on Social Security for monthly benefits, including retirees, disabled workers, and survivors.
- • Full Retirement Age (FRA):
The FRA for Social Security is currently 66 or 67, depending on the year you were born.
- • Cost-of-Living Adjustment (COLA):
Benefits are adjusted for inflation through COLA, which helps ensure that benefits keep up with rising living costs. The increase is based on the Consumer Price Index.
The Challenge Ahead
CRFB estimates that if lawmakers don’t come up with a fix by 2033, a medium-earning couple could lose about $18,100 a year in Social Security benefits. For single-income couples, that number is closer to $13,600 annually.
These potential cuts would depend on things like income, marital status, and work history, but no matter how you look at it, they could take a serious toll on retirement income.
This all ties back to a warning from the latest Social Security Trustees report. It shows that by 2034, the two main trust funds that support Social Security could run out of money. If that happens, the program will have to rely only on current payroll taxes coming in, which would automatically result in about a 21% cut to benefits unless Congress steps in.
WealthTrace allows you to model scenarios to assess how potential reductions in Social Security benefits could impact your financial plan.
Why It Matters
Social Security plays a major role in retirement for millions of Americans. It’s more than just a check, it's often the backbone of monthly income for older adults. Right now, the program is funded mostly through payroll taxes and some reserve funds. But as the population ages and fewer people are paying into the system, there's a growing gap between the money coming in and the money going out.
With the ongoing questions about the future of the program, it’s more important than ever to build a strong financial foundation that doesn’t depend entirely on government benefits.
Here are some smart, actionable ways to take control of your retirement savings and reduce your reliance on Social Security.
1. Max out your retirement accounts. One of the most effective ways to build long-term wealth is to consistently contribute to tax-advantaged retirement accounts like IRAs and 401ks.
2. Diversify your investments. Don’t put all your eggs in one basket. A well-balanced portfolio can help reduce risk while building long-term growth.
3. Pay down high-interest debt. Carrying debt into retirement can be a major burden. Focus on eliminating high-interest obligations like credit cards, auto loans, or personal loans. Fewer monthly bills mean more flexibility and financial peace of mind down the road.
4. Keep lifestyle spending in check. It is tempting to spend more as your income rises but resisting that urge can pay off. Instead of upgrading your lifestyle every time you get a raise or bonus, consider increasing your retirement contributions or building up your emergency fund.
5. Use financial planning software like WealthTrace. Planning ahead is easier when you can see the full picture. WealthTrace lets you model detailed retirement scenarios, including potential Social Security cuts, so you can understand how your savings, investments, and income streams work together over time.
With WealthTrace, you can develop a comprehensive financial plan by incorporating contributions to investment accounts, analyzing and adjusting your asset allocation, creating detailed budgets, and running various scenarios to ensure your strategy is aligned with your long-term financial goals.
What’s Driving the Numbers?
Interestingly, CRFB is predicting a slightly bigger cut, 24% instead of 21%, because of new policy changes, particularly the recently passed One Big Beautiful Bill Act (OBBBA). This bill includes some popular tax breaks for seniors, like a larger standard deduction for most people age 65 or older.
While that’s great news in the short term, it also means less tax money is going back into the Social Security system, so the funding gap could grow even faster unless other changes are made.
The Bottom Line
Social Security has been through tough times before. Back in the early 1980s, the program was also on the brink of running out of money. To keep it going, Congress stepped in with a set of fixes, like raising payroll taxes, slowly increasing the full retirement age, and starting to tax part of Social Security benefits.
Given the uncertainty surrounding Social Security’s future, it’s more important than ever to take steps now to secure your own financial future. Start by contributing to retirement accounts, keeping your spending in check, and using planning tools like WealthTrace to prepare for different scenarios.
Do you know how your financial plan will hold up if Social Security benefits are reduced? If you aren’t sure, sign up for a free trial of WealthTrace to build your financial and retirement plan today.