By Trina Paul
Sept. 4, 2024
Key Takeaways
- A Congressional Budget Office projection found that the Social Security trust fund is expected to run short in 2034, after which benefits will be reduced by 23%.
- Experts believe it’s unlikely that Congress will allow the Social Security trust fund to run short.
- Nonetheless, advisors recommend preparing for a potential cut in benefits by bulking up retirement savings and taking advantage of investment accounts.
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If you’re worried about a cut in Social Security benefits denting your retirement savings, there are steps you can take to make up for the shortfall.
While many advisors say that it’s unlikely that Congress will allow the Social Security trust fund to run short of money, they think it’s still important to prepare for a worst-case scenario where benefits get cut.
“If you wait too long because you don't want to tackle the problem, kind of like what Congress is doing now, the changes that you're going to have to make within your life are going to be a lot more drastic,” said Brian Schmehil, managing director, Wealth Management at The Mather Group.
According to a recent projection by the Congressional Budget Office, the Social Security trust fund is expected to be exhausted by 2034. After that, monthly benefits will be reduced by 23%.1
For low-income earners, Social Security can make up a large portion of retirement income. The Social Security Administration estimates that, for retirees receiving benefits in 2023 at full retirement age, those benefits will make up 70% of retirement income for very low earners and 28% for high earners.2
Figure Out How Much The Shortfall Will Affect You
When advisors help their clients with planning, they calculate their client's expected Social Security benefits. You can use an online benefits calculator. To understand how a potential cut would affect your benefits, you’ll want to reduce that amount by anywhere from 20% to 50%, according to experts.
Historically, retirement was thought of as a three-legged stool consisting of pensions, personal retirement savings, and Social Security.
“Pensions are being eliminated and Social Security for future generations is unsure,” Jamie Bosse, a financial planner at CGN Advisors said. “So that leaves personal savings to carry all the load.”
How To Invest To Make Up For The Shortfall
To make up for the lost benefits, you may have to save more, work longer, reduce your spending, or consider getting a side gig, experts say. Though it may be tricky to do so if you’re already struggling financially, said Schmehil.
Bosse says people should aim to invest 10% to 15% of their income towards retirement every year, with the goal being 20%. She suggests increasing your savings rate by 1% to 2% every year or every time you get a raise.
As for which accounts you should use to invest, Schemil recommends focusing on saving for retirement in the most tax-efficient way possible such as by earning your employer’s 401(k) match and then contributing to investment accounts like Roth IRAs, HSAs, and backdoor Roth IRAs.
Delay Social Security Benefits
Even though Social Security benefits face reductions, Paul Caylor, founder of Prudent Wealth and a CFP, suggests delaying collecting benefits past full retirement age (FRA), if possible, to make those dollars stretch for longer.
For every year after FRA, until the age of 70, that you don’t take benefits, you’ll earn an additional 8%. That means if your FRA is 67 and you wait until age 70 to collect, your monthly benefit will be worth 24% more.3 But most Americans would take early Social Security.
Article Sources
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- Congressional Budget Office. "CBO’s 2024 Long-Term Projections for Social Security."
- Social Security Administration. "Understanding the Benefits."
- Social Security Administration. "Delayed Retirement Credits."
