Social Security: 3 Moves To Make If Benefits Will Be Reduced

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Vadym Pastukh /

Social Security — the national program established to promote the economic security of Americans — is set to run out of funds sooner than expected

According to the 2022 annual report by the Social Security Board of Trustees, the trust fund that holds surplus money for the program is set to be depleted by 2034. While that won’t spell an end to Social Security, as it’s funded by ongoing payroll and self-employment taxes, it does mean that retirees will receive only about 78% of their promised benefits if Congress does nothing to address the shortfall.

“That also means current retirees would see their income cut,” said John Shrewsbury, financial advisor and co-owner of GenWealth Advisors. “I believe that could be the catalyst to prompt action by Congress on this issue, since politicians ultimately want to get re-elected and they know retirees vote in droves.”

However, he added, there are still some steps you can take to ensure that your retirement plans aren’t derailed by politics. Here are a few steps you can take to keep your retirement savings on track even if your Social Security benefits are going to be reduced.

Increase Your Savings Rate

As a general rule of thumb, you should aim to save about 15% of your earnings for retirement, including any employer contributions. According to T. Rowe Price, having 1 to 1 1/2 times your income saved for retirement by age 35 is a good goal. 

That said, these are just guidelines. If you can afford to do so without sacrificing other financial obligations and goals, it can be beneficial to bump up those numbers. “If benefits are cut, you will want to be sure that you have been aggressive in your savings rate in accounts like your 401(k), Roth, and traditional IRAs,” Shrewsbury said. “Just saving enough to get your employer-matching contribution is not enough.” 

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Plan For the Worst-Case Scenario

Next, it’s important to develop a written financial plan that creates a roadmap for that future income. You can certainly do this on your own, but it may help to consult a financial planner. 

Shrewsbury recommended discussing what your minimum expenses may look like in retirement, including basic needs such as food, clothing, housing and transportation. Then determine what income you will need to sustain yourself. Once you have your target number, you might consider reducing the amount you project to get from Social Security by 22%. “By anticipating the cut, you can build your plan based on a very conservative assumption and will have extra income if Congress is successful in addressing the shortfall,” he said.

Consider Delaying Retirement

Finally, you could also delay the date you take your first Social Security payment. 

Currently, full retirement age is 66 to 67, depending on what year you were born. You can begin receiving Social Security benefits as early as age 62, but you’ll receive a reduced amount forever. You’ll receive your full benefits if you wait until your full retirement age to claim them. And if you wait past that, you’ll get a larger amount that increases with each year you delay benefits, up to age 70.

For some people, it makes sense to claim Social Security benefits earlier. However, if you can afford to wait, the larger payments can help offset any possible reduction in benefits. Shrewsbury noted that delaying Social Security may or may not require you to delay your overall retirement date, but having extra savings can help. “Workers who have significant savings can more easily bridge the gap between a retirement date of 65 and taking Social Security at age 70,” he said.

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