Do you wonder whether Social Security will be available to you throughout your retirement? If so, you aren't alone. An internet search pondering just that — "will Social Security run out?" — returns over 1 million results.
Understanding the considerations that go into this question can help you make an informed decision about whether the end of Social Security is just another of many retirement myths or a real concern you need to plan for. Here's what you need to know.
The Basics Behind Social Security
Your monthly Social Security payment is calculated based on your best-paid 35 years of employment. You become eligible for your full payment at what is known as your full retirement age (FRA), which ranges from 66 to 67 depending on your birth year.
Unlike Medicare, which opens its eligibility at age 65, you have options for when you claim Social Security benefits. You may claim your benefits as early as age 62 or delay them until you are 70 — however, claiming them early means a reduced monthly payment for your lifetime. Depending on your income, you may have to pay taxes on your Social Security payments.
Why Worry About Social Security?
Social Security provides American seniors with a fixed monthly income from as early as age 62 until their death. Retirees who include Social Security payments as a definite part of their retirement planning could potentially run out of money if they live past the year 2034, based on current forecasts.
The Social Security Administration reports that as of 2017, the most recent figures, 46 million Americans (plus another 3 million dependents) depend on Social Security. Ninety percent of retired Americans receive Social Security payments, with an average monthly payment of $1,544. For many people, that makes up a significant portion of their monthly income.
As CNBC recently reported, the payroll tax collected has not met Social Security payments going out to the baby boomer generation now in retirement since 2010. This means that for the past 11 years, the Social Security program has been experiencing negative cash flow. Payments have been covered, however, by the interest earned from the Social Security fund's investment in interest-bearing Treasury securities at an average return of 2.5% in 2021.
How Social Security Forecasts Are Made
The longevity of the Social Security program is based on predictions of many factors, including changes in the economy and U.S. demographics. Any forces that impact the U.S. markets and population, such as reductions in birth rates or the number of people entering the workforce, can in turn impact the forecast of the Social Security program.
If the economic forecast strengthens, Social Security may remain in place to provide some form of benefits for longer. However, factors that damage the economy, such as the COVID-19 pandemic, also negatively impact the forecasts for the future of Social Security.
Will Social Security Run Out in My Lifetime?
Is the end of Social Security a real concern? Based on the latest economic forecasts from the SSA, it is actually a strong possibility.
Figures from the Center on Budget Policies & Priorities suggest that in 2021, Social Security payments will exceed the interest and incoming payroll tax. That shortfall will have to come from the reserves in the Social Security Trust Fund. In turn, these figures bolster predictions that the Social Security Trust Fund will be empty by 2034, according to the forecast in a November 2020 memorandum provided by Social Security Administration Chief Actuary Stephen Goss.
This revised forecast anticipates an empty fund a year earlier than the previous prediction of 2035 due to the economic influence of the pandemic. However, it's important to note that over the past few years, even before the events of 2020, financial experts cautioned the Social Security program would require significant changes in order to continue providing monthly benefits to American retirees.
How Social Security Might Look in the Future
If the Social Security program continues, it may undergo revisions that allow it to offer a form of reduced benefits rather than disappearing completely. For example, it may raise the age of eligibility or exclude applicants with a retirement income above a specified threshold.
How to Prepare for the Possible End of Social Security
In the face of so much uncertainty around this program's end, it may make sense to revise existing retirement plans to exclude Social Security after 2034. Instead, depending on your age and stage, consider changing your financial strategies.
Potential changes could include:
- Looking for ways to maximize tax-sheltered retirement accounts now.
- Adjusting your long-term savings contributions, and considering working part-time as a retiree or even self-employment options such as consulting.
- If you're close to retirement age, consider taking Social Security at age 62 so you'll receive benefits for at least a few years.
Is the End of Social Security a Retirement Myth or Fact?
Based on the calculations of economists, actuaries, and the SSA itself, if Social Security continues to operate as is, the answer is that Social Security will run out. Economic shifts over the past decades, changing demographics and the 2020 pandemic have all negatively impacted this program.
However, Americans can prepare for possible changes to Social Security by planning for the loss of that income in retirement plans, exploring other types of income or taking Social Security as soon as possible.
Talk to your financial advisor about the best options for you to anticipate Social Security changes and adjust your retirement plans.