"Social Security Trust Fund Depletion: 4 Essential Things to Know"
Social Security benefits may be reduced by 77% in the future due to financial pressures, but changes are likely to be made to prevent cuts.
The future of Social Security is a topic of concern for many Americans, as it has implications for virtually every retiree. According to David Blanchett, head of retirement research at PGIM, Social Security is the most prominent source of guaranteed income for retirees. In fact, 97% of Americans age 60 and older either receive or will collect Social Security benefits. For many elderly beneficiaries, Social Security provides at least half of their income.
Blanchett emphasizes the importance of Social Security as America's pension safety net, particularly in providing income during retirement. The average benefit for retirees is currently $1,837 per month, and approximately 67 million Americans receive a Social Security check each month. While most beneficiaries are retirees, disabled workers, surviving spouses, and dependents can also collect benefits.
However, the financial health of Social Security is under pressure. With beneficiaries living longer and 10,000 baby boomers retiring every day, the number of workers paying into the system is falling relative to the number of beneficiaries. This imbalance has led to projections that the Old-Age and Survivors Insurance trust fund, which supports Social Security benefits for retirees, will run out by 2033.
If the trust fund is depleted, Social Security benefits would not disappear entirely. Workers would still pay into the system through payroll taxes, and those funds would still be payable to retirees. However, there would be cuts, with only about 77% of promised benefits being payable. Congress is expected to take action to address the solvency problem, potentially through measures such as reducing benefits, raising the full retirement age, increasing taxes on benefits, or implementing other changes.
Blanchett believes that any changes to Social Security are likely to be a "last-second compromise" and that there will be winners and losers. However, he does not expect changes that would negatively impact current retirees. Younger Americans, particularly those in their 40s, may need to adjust their expectations and plan for a lower benefit in the future.
Financial planner Doug Boneparth, who works with millennial and Gen Z clients, emphasizes the importance of planning for the possibility of reduced Social Security benefits. He advises clients to save and invest more to ensure they can fund their desired lifestyle in retirement.
Overall, the future of Social Security remains uncertain, and predicting what it will look like in the coming years is challenging. However, it is crucial for individuals to be aware of the potential changes and to plan accordingly to secure their financial future.