Can you count on Social Security in retirement?

You may have heard warnings about the future of Social Security. And if you’re a long way from retirement, you may be wondering if you’ll ever receive any benefits. Should you count on them?

It's true that Social Security is experiencing financial pressures, especially as the huge baby boomer generation retires and collects benefits. Nonetheless, the system is certainly not going bankrupt. If no changes are made, it will need to make cuts in 2033, paying about 79 cents for each dollar of projected benefits, according to the 2024 Board of Trustees Report issued by the Social Security and Medicare trust funds. But this is still a big “if” – because a number of steps can be taken to shore up Social Security.

For example, raising the combined payroll tax from 12.4% to 15.73% would fully fund the program through at least 2098, according to the Social Security Board of Trustees. And other moves, such as changing the earliest eligibility age (currently 62) or the full retirement age (currently between 66 and 67) could also extend Social Security’s ability to continue paying full benefits, though these options may be less appealing. Ultimately, Social Security can be fixed, but for this to happen, Congress may have to make some difficult decisions.

In any case, Social Security was never designed to meet all your retirement needs. On average, Social Security will only replace about 40% of your pre-retirement income, according to the Social Security Administration – which means you’re going to be responsible for generating a significant portion of the income you need in retirement. Furthermore, some of the proposed fixes for Social Security – such as moving back the earliest age for accepting benefits or the age at which you can claim 100% of your benefits – will likely increase the amount you need to save for your life as a retiree.

Focus on what you can control

While Social Security's future payouts may lie in the hands of Congress, you still have control over one key aspect of your benefits – when to take them. Although this decision is a long way off for you, and some of the age parameters may change, the essential principle will likely remain: The earlier you take your benefits, the smaller the monthly checks.

To illustrate: Currently, you can start collecting Social Security as early as 62. But, if you take benefits before full retirement age (generally 67), those benefits could be permanently reduced by as much as 30%. Assuming you might spend 20 to 25 years as a retiree, this initial reduction can have a huge effect on your retirement income stream. Plus, the decision to take benefits early can also affect your spouse. Conversely, benefits could be increased by as much as 24% for those who wait until 70, when the benefits “max out.”

So, when you do become eligible for Social Security, you’ll want to be in a position where you can afford to delay taking benefits, if you choose. And that means you’ll need to build your retirement resources as much as possible while you're working.

Learn more about what you can do now to save for retirement.

We can help you prepare for the future

No one can say for sure how Social Security may change in the future. But if you’ve prepared yourself financially, you may find that you're able to weather the possibilities. Your financial advisor can illustrate some possible scenarios involving Social Security that can help you create and follow a long-term financial strategy.