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Social Security’s trust funds are expected to run out of money by 2034, at which point beneficiaries would see a 20% cut to their benefits—but should workers plan for them at all?
Congress has yet to decide how to fix Social Security, but so far it has never let the program falter. Still, the trustees’ report released this month states the combination of the two trust funds (for retirement and disability benefits) could see benefit cuts as early as 2034—a year earlier than last year’s projections—if nothing is done to fix it. Medicare Part A’s trust fund could also face depletion by 2031, though that is an improvement in relation to last year’s projection of 2028.
Read: Next year’s Social Security cost-of-living adjustment could be less than half this year’s COLA
Retirement benefits specifically, under the Old-Age and Survivors Insurance trust fund, could be exhausted by 2033 with a 23% benefit cut. The fund for disability isn’t expected to face depletion in the 75-year projection period.
Not everyone approaches Social Security the same when planning for their retirements, advisers said. Some clients want to include their expected benefits fully, while others are more skeptical of the program and exclude their benefits completely.
The answer depends partially on how close retirement is, said Nicholas Bunio, a certified financial planner. “People 10 years out should consider their full benefits provided in their statements,” he said.
Those 11 to 20 years away might want to lower their expected benefit a few percentage points. Using estimated benefits would do that, anyway, he added. “One thing to note is, Social Security is based on your earnings of the 35 highest years. People at this age will still have $0 for some years in their report, artificially lowering their estimated benefits,” Bunio said. “So for planning, if you use your current Social Security report numbers, these will be lower automatically than one might get anyway.”
Workers 20 or more years away shouldn’t include Social Security in their plans at all, Bunio said—aside from Social Security’s insolvency issue, anticipated benefits would be too much of a guess.
Near-retirees should make an online account with the Social Security Administration for three reasons, said Ralph Bender, a certified financial planner and founder of Enduring Wealth Advisors: having an account will allow users to see what they can expect to get in benefits in the future; confirm their personal information and earnings history is correct; and prevent scammers from gaining access to their information.
The Social Security Administration also has a calculator for retirement benefit estimates. Users should plug in $0 for future income, which would show them what they could expect from Social Security if they don’t earn another dollar between now and claiming (that’s your vested amount), and then try the calculation with their anticipated retirement age and the average salary they’ll earn between now and then, said Jeremy Keil, a certified financial planner at Keil Financial Partners. “When you look at the difference between your vested amount and your own projected amount, it gives you a great idea on how much your future working affects your future Social Security benefit,” he said.
Workers concerned about Social Security not paying full benefits can take those figures and subtract 20%. For example, someone expecting a monthly benefit of $2,000 would get $1,600 if they factored in the trustee’s estimate for benefit cuts.
Some advisers are even more conservative. Kassi Fetters, a certified financial planner and owner of Artica Financial Services, said her firm accounts for 50% to 75% of Social Security benefits for individuals more than 10 years away from retirement.
Other advisers suggest clients focus on what they can control, such as their savings and spendings and the accounts they use (such as 401(k) plans, traditional and Roth IRAs and health savings accounts). “In thinking about retirement 10-20 years out, I encourage clients to not spend too much time worrying about a specific dollar benefit given the various uncertainty drivers,” said Joel Mittelman, a certified financial planner and president of Mittelman Wealth Management.
Social Security’s trust fund issues may be disconcerting, and provide a headache for people trying to plan their retirement income, but the program will likely stand for decades to come.
“Social Security is currently on an unsustainable path, but I believe Congress will eventually fix the issue like they did back in the 1980s,” said Matt Stephens, a certified financial planner and founder of Advice Point. “They may wait until 11:59 p.m. the night before the whole thing blows up, but I have no doubt Congress will fix it.”
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