Should You Plan for a Retirement Without Social Security?

It’s a scary story told to frighten the younger members of the workforce: Social Security is running out of money and will soon be a thing of the past, leaving you to fund retirement entirely on your own. Cue the horror movie soundtrack.

Fortunately, it isn’t true, although the program’s future is far from rosy. Below, I’ll break down why people think Social Security’s about to bite the dust and what its real future means for your retirement.

Image source: Getty Images.

The good news and the bad news

The reason so many people think Social Security is going to disappear is that its trust funds are near depletion. The 2020 Social Security Trustees Report predicted the funds would be fully depleted by 2034, but that was before the pandemic really took hold.

While the Social Security Administration has yet to release an updated estimate, the Bipartisan Policy Center estimates the trust funds could now be depleted as early as 2029. That sounds bad, but the trust funds are only part of how the government funds Social Security.

The majority of the program’s money comes from the Social Security tax all workers pay on their income. Right now, it’s 12.4% split evenly between employee and employer on the first $142,800 you earn in 2021. In 2019, payroll taxes covered 89% of the benefits Social Security paid out.

Another 7.6% came from interest earnings. The money in the Social Security trust funds is invested in various securities, and when they do well, the interest provides an additional source of income for the program. The remaining 3.4% came from seniors paying taxes on their Social Security benefits.

Even once the trust funds are completely depleted, two of those three revenue streams would still exist, which means Social Security isn’t going away. But it’s probably not going to go as far as it does now. The latest Social Security Trustees Report estimated that following 2034, Social Security would only be able to pay out 76% of the benefits retirees are owed. That estimate was made pre-pandemic, so the situation could be even more dire now. And it poses a challenge for those of us trying to figure out how much we need to save for retirement.

What do we do now?

You don’t have to plan for a retirement without Social Security, although if it makes you feel better to save a larger nest egg so you don’t need to rely on the program at all, go for it. For everyone else, you can estimate your future Social Security checks by creating a my Social Security account. This tells you your estimated benefit based on your work history up until this point and the current benefit formula. If you want to be extra safe, assume you’ll only get 76% of that. That way, if benefit cuts do happen, you’ll still be okay.

Keep in mind that the age you start benefits affects the size of your checks. You must wait until your full retirement age (FRA) — 67 for most workers — if you want the benefit you’re owed based on your work record. You can start as early as 62, but you’ll get less per check if you start that early. You can also delay benefits until 70 and your checks will increase. If you expect to live into your mid-80s or beyond, delaying benefits will usually give you the most money overall, but it’s not feasible for everyone.

Regardless of the size of your Social Security checks or when you start claiming, you still need a lot of money saved on your own. The average Social Security check right now only provides about $1,551 per month, which isn’t enough for most people to live on.

So you need to have a personal savings plan and start putting money away in a 401(k), IRA, or other retirement account to help you cover what Social Security won’t. How much you need depends on the type of lifestyle you want in retirement, but it’s always better to overestimate slightly than to guess too low, especially with the future of Social Security so uncertain.

It’s tough to plan for retirement when you don’t know exactly how much to save on your own, but as long as you have an educated guess, contribute to your retirement accounts regularly, and stay up to date on what’s happening with Social Security, you can give yourself a good chance of retiring comfortably. Then, if benefits do decrease or if the government alters the program in some way, you can alter your retirement plan to help keep yourself on track.

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