A Social Security Storm Is Gathering: Here's Your Safety Plan

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I used to believe Congress would swoop in like Superman and rescue retirees from any potential reductions to their Social Security benefits. But here we are, with just a decade remaining until cuts could become a necessity, and we’re still waiting for a fix to the program’s much-discussed funding shortfall.

To be clear, Social Security is not going bankrupt. If Congress does not take action to ensure the trust fund's solvency, the program will still have enough money coming in from Federal Insurance Contributions Act (FICA) taxes to make scheduled payments to the retirees and others who rely on them every month. But in the future, the amount those beneficiaries receive could be significantly reduced.

According to the latest Social Security Trustees Report, the Old Age and Survivors Insurance (OASI) Trust Fund expects to be able to pay scheduled retirement benefits on a timely basis until 2033. “At that time,” the report states, “the fund's reserves will become depleted and continuing program income will be sufficient to pay 79% of scheduled benefits.”

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Of course, a reduction wouldn’t have the same impact on everyone. Social Security isn’t meant to be your only source of income in retirement — and many retirees have savings, a pension and other financial resources they can count on. Still, according to the Social Security Administration (SSA), Social Security benefits replace about 40% of the average retiree’s annual pre-retirement earnings. (This number varies based on each person’s circumstances.)

For those who rely almost entirely on their monthly benefits to get by, a 21% cut would be extremely challenging.

What are some possible solutions?

The looming shortfall isn’t exactly breaking news — the trustees’ annual reports have included warnings about it for years. People know about it, and they’re worried. In a 2024 poll conducted for Newsweek by Redfield & Wilton Strategies, 92% of those surveyed said they’re concerned that their Social Security retirement benefits will amount to less than what current older people can claim.

As for fixes, there isn’t much new there, either. Options include:

Raising the full retirement age for future recipients. There’s been recent precedent for this move: Despite rioting in the streets, France passed a law in 2023 that raised its retirement age from 62 to 64. And in the United Kingdom, the State Pension age for men and women will increase from 66 to 67 between 2026 and 2028. Raising the retirement age has also been a solution in the past in the U.S., so it wouldn’t be surprising to see it happen again here.

Employing some form of means testing. Is it possible that someday people in higher income brackets will no longer receive Social Security benefits or could have their payments reduced? I used to think this was a long shot, but perhaps not — especially if Congress waits until the last minute to step in.

Right now, our elected officials seem reluctant to face the backlash from such a move. But political priorities may shift in the next decade. And again, there is precedent: High-income households already pay more for their Medicare premiums thanks to the income-related monthly adjustment amount (IRMAA) fee.

Increasing the payroll tax rate or substantially increasing the cap on maximum taxable earnings. Either of these actions could boost the revenue that flows into the Social Security program, but they would likely raise the ire of high-earning voters and those who have years to go before they plan to retire.

Raising taxes on Social Security benefits. Currently, depending on a Social Security recipient’s income, up to 85% of his or her benefits may be taxed. There have been proposals in the past that this percentage — or the income threshold that triggers taxation — could be changed to increase revenue to the program.

In an interesting plot twist, however, it was suggested just before the general election in 2024 that the tax on Social Security benefits should be eliminated altogether. That would be good news for those looking for an increase in net spendable income each month in retirement. But it would be bad news for the insolvency timeline.

Do you have a plan … just in case?

While we wait for lawmakers to design, pass and implement a rescue plan that keeps Social Security on course, here are some steps to consider that could help you prepare for potential changes.

Talk to your financial adviser about running a Social Security “stress test.” This is a great place to start. A retirement specialist can do a risk assessment that factors in any potential reduction to your Social Security benefits and how it might impact your income plan.
Give your Social Security claiming options some serious thought. Would it make sense to file for your benefits sooner than planned and stash that money away for the future, just in case there are cuts someday? Or would it be wiser to delay filing for as long as possible to maximize your benefit amount? Your adviser can help you compare all your options and find the right timing for your goals.
Review your retirement income streams and, if necessary, rethink your plans. Would working longer or taking a part-time job in retirement help you avoid a personal funding shortfall? If you’re still working, would it be possible to save more toward retirement than you have been (perhaps using catch-up contributions if you’re 50 or older)? What tweaks could you make to your investment portfolio to ensure your retirement paycheck remains where you need it to be?

Here’s hoping we see some movement soon from our elected officials and that they find a way to protect this important benefit for generations to come. But if lawmakers keep treating Social Security like political kryptonite and fail to swoop in, you may just have to save yourself.

Kim Franke-Folstad contributed to this article.

The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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As CEO of Colorado-based Graylark Financial, Brian Gray is passionate about helping people achieve their financial goals and realize their bucket-list dreams. Financial education is a priority in his practice, and he is the co-author of three books (“Smiling Through Retirement,” “Retire Abundantly” and “Giving Transforms You”) with another on the way. Brian has been a regular on Denver radio and has been featured in several local and national publications, including Fortune, Money, Bloomberg Business, Wall Street Select and MarketWatch.