Your Age and Social Security Benefit Cuts: Here’s What You Can Expect
Today, Americans are living on average 14 years longer than when the Social Security Act was enacted in 1935 and retiring three years earlier — spending an average of 20 years in retirement. According to a 2020 Social Security Administration trustees report, incoming revenues will only be enough to pay about 76% of scheduled Social Security benefits by 2034, USA Today reported.
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While lawmakers have several policy options to reduce or eliminate long-term financing issues in Social Security, according to the SSA, action needs to be taken sooner rather than later to address these challenges. USA Today noted that there are several possible reforms — tax increases, benefit cuts or a combination of both — are often mentioned but there’s been little interest in dealing with the shortcoming between incoming revenue and scheduled benefits.
“The implications with Social Security’s solvency tend to fall on generational lines,” explains Marcia Mantell, a principal with Mantell Retirement Consulting. Mantell and Joe Elsasser, a certified financial planner and president of Covisum, spoke with USA Today and both agree that Social Security beneficiaries and would-be beneficiaries need to consider taking action.
Baby Boomers
For the baby boomer generation, Mantell told USA Today that Social Security benefit estimates should be on track and will be unlikely to be reduced if Congress fails to put a solution in place. While Elsasser agrees, he advises taking some precautionary measures.
“Baby boomers should plan for benefits as they are projected, but stress test for a benefit cut,” he says. “Historically benefit cuts have been phased in over time.”
Generation X
While there’s still time for the generation born between 1965 and 1980, retirement age is quickly approaching. Elsasser recommends planning on a 10% reduction in Social Security benefits. He also advises doing a retirement projection with a reduced Social Security amount so that you can balance your lifestyle now with the lifestyle you’d like to have in retirement.
Mantell also recommends staying on the safe side by altering your spending and savings strategy. “You have time on your side, and every $1,000 or $2,000 or $5,000 you can sock away now will increase your income for retirement and balance out the trade-offs that you may have to make,” she says.
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Gen Z and Millennials
Gen Z and millennials are in luck. USA Today pointed out that experts say it’s too early for Gen Z and millennials to worry about benefit cuts. Both Mantell and Elsasser agree that the younger generations should focus on building skills, education and training to maximize earnings potential during peak earning years. “Saving consistently in vehicles you won’t touch until retirement is important as well. At a minimum, be sure to take advantage of any company matches or incentives,” says Elsasser.
Nothing is for certain but Congress will be forced to take action. Michael Finke, a professor at the American College of Financial Services, told USA Today that he predicts Congress will start by either increasing payroll taxes, increasing the claiming age or changing the inflation adjustment.
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