Will Social Security Be There When You Retire? The Reality and How to Prepare for It

The security (no pun intended) of Social Security a major concern with many Americans. With news of funding shortfalls, potential benefit cuts, and changes to the system, it’s natural to worry about the future of Social Security. After all, it's a program that most individuals have paid into for decades.

In this post, I’ll walk you through the current state of Social Security, the challenges it faces, potential solutions on the table, and how you can best prepare for your retirement years.

The Critical Role of Social Security in Retirement

First, let’s talk about the role Social Security plays in retirement. It’s more significant than many people realize. For nearly 50% of retirees over the age of 65, Social Security provides more than half of their retirement income. And for one in five retirees, it’s essentially their only source of income.

If you’re planning your retirement, understanding the importance of Social Security is crucial. While it’s rarely enough to fund an entire retirement, it provides a financial safety net that millions of Americans rely on for their basic living expenses.

Is Social Security Really Running Out?

I often hear from pre-retirees that Social Security is going to "run out of money" and won’t be there when they need it most in retirement. While this fear is understandable, the truth is a bit more nuanced.

Without any changes, projections show that Social Security payments could be reduced by about 17% by 2035 due to a funding shortfall according to the Social Security Administration. This issue stems from a combination of an aging population, lower birth rates, and longer life expectancies, all of which are putting strain on the system. 

According to current projections, by 2098, Social Security taxes will still cover about 73% of projected benefits. While that’s not ideal, it’s a far cry from the system running dry.

Why Social Security Is Likely Here to Stay

One reason Social Security is unlikely to vanish is that millions of Americans depend on it. For a large portion of retirees, Social Security is the lifeline that keeps them afloat. Politicians understand this, and they know that retirees represent one of the largest and most active voting groups in the country. It’s unlikely that any politician would support drastic cuts or the elimination of Social Security and expect to stay in office.

That said, it’s very possible that benefits for future retirees could be reduced unless changes are made to the system. So, while I don’t believe Social Security will disappear, it is prudent to at least plan for the possibility of lower benefits when you retire.

Potential Solutions to Fix Social Security

There are a few relatively simple solutions that could help keep Social Security solvent for future generations, though they tend to be politically unpopular. Here are some of the most common ones:

1. Increasing the Full Retirement Age

Right now, the full retirement age (FRA) is around 67 for those born after 1960. Gradually increasing the FRA would reduce the number of years individuals can collect benefits, which could help extend the program’s financial viability.

2. Raising the Income Cap on Social Security Taxes

Currently, workers pay Social Security taxes on income up to $168,600. One potential fix is raising or eliminating this cap, so higher earners contribute more into the system. This change could generate additional revenue without impacting lower-income earners.

3. Means Testing

As it stands, anyone who pays into Social Security for the required number of years can receive benefits, regardless of their wealth or income. Introducing means testing could reduce or eliminate benefits for higher-income retirees. For example, someone earning millions a year in retirement might not receive Social Security benefits, preserving more funds for those who need them.

4. Reducing Claiming Strategies

There are several claiming strategies available that can sometimes be used to maximize Social Security benefits. Limiting these options could reduce program costs and simplify the system overall.

While these solutions could help solve Social Security’s funding issues, they face strong political resistance. But that doesn’t mean you can’t plan for the future.

Don’t Rely Solely on Social Security for Retirement

Even though Social Security will likely be around in some form, it’s crucial not to rely on it as your only source of retirement income. Social Security alone is rarely enough to sustain a comfortable lifestyle in retirement, and future benefits may be lower than they are today.

One way to protect yourself from potential Social Security cuts is to build your own financial safety net. Consider contributing to savings vehicles, such as:

• 401(k) Plans: Many employers offer these tax-advantaged retirement accounts. Maximizing your contributions can significantly boost your retirement savings.

• Roth IRAs: These accounts grow tax-free, and qualified withdrawals in retirement are also tax-free. They can be a great way to diversify your income streams in retirement.

• Brokerage Accounts: While not as tax-advantaged, these accounts give you flexibility and additional income sources to tap into during retirement.

By saving and investing wisely now, you can supplement your Social Security benefits and create a retirement plan that allows for flexibility and security.

Key Takeaways: What Does the Future of Social Security Mean for You?

While there’s a lot of uncertainty surrounding Social Security’s future, it’s unlikely that the program will disappear altogether. Too many people depend on it for their survival, and the political risks of cutting it drastically are too high. However, it is possible that benefits could be reduced for future generations if no changes are made.

That's why it's important not to rely solely on Social Security for your retirement income. By saving in tax-advantaged retirement accounts, creating multiple income streams, and planning ahead, you can safeguard your financial future and be prepared for whatever happens with Social Security.

If you have any questions or concerns about your retirement plan, I’m here to help. Let’s discuss how you can create a strategy that accounts for potential changes to Social Security and ensures you’re on track for a secure retirement.

About The Author

Caleb Pepperday, CFP®, ChFC® provides Fee-Only Financial Planning and Investment Management Services for medical professionals. Advanced Practice Planning, LLC is based in Missoula, MT, but primarily works with clients in a virtual capacity nationwide. As a CERTIFIED FINANCIAL PLANNER™ and fiduciary, Caleb Pepperday works to create financial plans for medical professionals with their best interest in mind. As a Fee-Only financial planner, Caleb Pepperday is only compensated through the investment management or financial planning fees that you pay him directly and never earns a commission. Caleb Pepperday primarily focuses on helping mid-career and pre-retiree Physician Assistants/Physician Associates retire with confidence.

Disclosures: 

The information provided in this article is for educational purposes only and is not intended as financial, legal, or tax advice. No content within should be construed as such. The material presented is based on general financial principles and concepts, and individual financial and tax situations may vary.

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