Should you count on Social Security benefits as an integral part of your retirement income plan? And how much? These are questions we hear often. There's a lot of confusion out there regarding social security benefits because misinformation abounds. With political issues, rhetoric becomes inflamed, and information is often used to sway opinion or policy.
But when you're planning for retirement, misinformation is dangerous. What you need are solid answers about Social Security. Let's look at some of the most common questions surrounding Social Security in retirement.
Will Social Security Be Available During My Retirement Years?
The Congressional Budget Office projects that the trust funds that support Social Security will be exhausted in 2031, but that doesn't mean the program will cease to exist. Historically, benefits paid out each year exceed the revenue collected by the Social Security Administration, so the trust funds supplement the shortfall. Those trust funds are estimated to be depleted in 2031. Should that happen, Social Security will only be able to pay out the revenue collected, so payable benefits are expected to be 25 percent less than scheduled benefits.
If conditions remain the same, this state of affairs is expected to continue until 2087, at which time the gap will widen and benefits will be 34 percent smaller than scheduled benefits. So, to answer this question, it is projected that Social Security benefits will be available during your retirement years, but your benefits may be reduced by roughly 25 percent from today's scheduled benefits after 2031.1
Will Social Security Fundamentally Change During My Lifetime?
Without question, the government can make changes to Social Security, and given the current state of the system, it must make changes. Changes to the Social Security program have happened in the past, so there's a historical precedent for changes in the future. In 1983, Congress made fundamental changes to Social Security in order to push solvency forward for another fifty years. With the scheduled 2031 depletion of the Social Security trust funds, there's a good chance that Congress will again make changes to the program.2
What those changes will look like depends on a variety of factors, but no politician wants to be responsible for the cutting of Social Security benefits to senior citizens. Therefore, it's possible that Congress will make changes to Social Security by enacting higher taxes on certain income ranges or other similar measures to make up for the lack of funds projected after 2031.
How Should I Incorporate Social Security Into My Retirement Income Plan?
Given that Congress has made adjustments to Social Security in the past to keep the program solvent, it is likely that including Social Security benefits in your retirement planning makes sense. You could also see how your retirement plan would perform if you reduced your social security income to 75% of today's scheduled benefits. Your Financial Adviser can help you to make these adjustments and suggest ways to make up for the missing 25%. This can be done by changing your allocations, reducing spending, increasing your retirement account contributions, and more. As you make adjustments, consult carefully with your Financial Adviser to avoid taking on additional risk you don't need or can't handle.
What's My Next Step?
One of our Wealth Managers here at WrapManager can create an investment plan for you that can help you to mitigate any shortfalls in your retirement plans. We can customize your retirement plan specifically to your needs and lifestyle. Get started by answering a few short questions here, or give us a call at (800) 541-7774.
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