Social Security benefits are a lifeline for millions of retirees. In fact, around 23% of workers expect their monthly checks to be their primary source of income in retirement, according to a 2022 report from the Transamerica Center for Retirement Studies.
However, Social Security isn't as reliable as it used to be, and it's becoming more difficult for retirees to depend on their benefits. There are two key ways that the program is failing seniors, and if you're already retired or planning to retire soon, you may need a backup plan.
1. Benefits are failing to keep up with inflation
Most years, seniors receive a cost-of-living adjustment, or COLA, to help their benefits keep up with inflation. That adjustment generally falls between 2% and 4%, but last year, retirees received a whopping 5.9% COLA to account for surging inflation near the end of 2021.
However, the actual inflation rate is around 8.5% over the past 12 months, according to the most recent data from the Bureau of Labor Statistics. That means that over the past year, benefits have lost buying power — even with a larger-than-average COLA.
This isn't a recent issue, either. In fact, Social Security benefits have lost around 40% of their buying power since 2000, according to a 2022 report from The Senior Citizens League. If this problem persists, Social Security won't go nearly as far in the future.
2. Cuts could be looming
In addition to inflation, Social Security is facing another issue: a cash shortage.
Benefits are funded primarily by payroll taxes. However, with baby boomers retiring in droves and the average retiree living longer, the Social Security Administration (SSA) has been paying out more money in benefits than it's receiving from taxes.
As a result, the SSA has been dipping into its trust funds to cover the deficit and avoid cutting benefits. But those trust funds are expected to run dry by 2034, according to the latest estimates from the SSA Board of Trustees. When that happens, taxes will only be enough to cover around 77% of future benefits.
To be clear, this doesn't mean Social Security is going bankrupt. As long as workers continue paying payroll taxes, there will always be at least some money to pay out in benefits. It does mean, though, that benefits could be cut by up to 23% by 2034 if lawmakers can't agree on a solution before then.
What you can do to prepare
There may be nothing you can do to stop inflation or prevent future benefit cuts. But you can take steps to solidify your retirement plans.
If you still have a few years left before you retire, try your best to save as much as you can. When Social Security is shaky, it's more important than ever to have a robust retirement fund to fall back on. Even if you can't save much, any additional savings can go a long way.
You could also consider delaying Social Security. The longer you wait to begin claiming (up to age 70), the more you'll receive each month. By waiting until age 70 to file, you'll receive your full benefit amount plus up to 32% extra.
While delaying benefits won't' solve inflation issues or benefit cuts, it can help cushion the blow if Social Security isn't as reliable in the future.
Social Security benefits can be a substantial source of income for millions of retirees, but the program isn't perfect. By taking steps to prepare now, you can ensure your retirement is as financially secure as possible — regardless of what happens with Social Security.
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