3 Social Security Shocks to Gear Up For

There’s a good chance Social Security is, or will become, an important income source for you. But the program has the potential to change through the years — and not necessarily for the better. Here are a few shocks you may need to brace for.

1. Benefit cuts

If you’re already collecting Social Security, you know what monthly benefit to expect. But in a little over a decade, seniors could be in for benefit cuts if lawmakers don’t come up with a way to shore up Social Security’s finances.

The problem really boils down to baby boomers and the mass workforce exodus they’re expected to spearhead in the coming years. Social Security’s main source of funding is payroll taxes. Once boomers retire in droves, the program will see that revenue stream decline. At the same time, more people will start filing benefit claims, thereby draining the program’s financial resources.

Social Security does have trust funds it can tap to make up that revenue shortfall. But once those funds run dry — which is projected to happen in 2035 — universal benefit cuts could be on the table. Or, to put it another way, a major source of your retirement income could shrink.

2. Inadequate raises

Last year, many seniors were thrilled when a 5.9% cost-of-living adjustment (COLA) was announced for 2022. And next year’s COLA is shaping up to be even larger.

But as helpful as this year’s COLA has been, it’s already failed to keep pace with the rate of inflation. And future COLAs are likely to fall into a similar trap. That means that if you’re reliant on Social Security raises to maintain your buying power in retirement, well, don’t be. Instead, consider setting yourself up with other income streams, like a part-time job.

3. The potential for a later full retirement age

Full retirement age (FRA) is when you can collect your full monthly Social Security benefit based on your earnings history. That age is 66, 67, or somewhere in between, depending on the year you were born.

But lawmakers are already pushing to move FRA back to 68 or 69 to account for Social Security’s aforementioned financial shortfall. The logic is that since life expectancies have increased, and since the program needs money, pushing back FRA is a reasonable solution.

You may not feel that waiting an extra year or two to collect Social Security is reasonable. But that’s also the reality you may end up facing.

Lawmakers have to do something to prevent benefit cuts. And while there are other solutions on the table, like imposing higher payroll taxes on workers, they all have their flaws. Clearly, this solution has its downside, but what would you rather do — delay your claim by a year or pay more taxes out of your wages for the next 20 or 30 years?

It pays to anticipate change

Social Security is based on a specific set of rules, but that doesn’t mean things can’t change. And whether you collect benefits now or are hoping to collect them during retirement, it’s important to brace for what may lie ahead.

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