The Social Security retirement trust fund is expected to run short of funds months earlier than projected last year, according to the annual Social Security and Medicare trustees’ report. Without congressional action, younger generations could be left to bear the burden. The earlier depletion, projected by 2033, is due in part to policy changes such as expanding coverage to nearly 3 million current and former public sector workers who were not previously covered by Social Security.
Factors such as a potentially low fertility rate in the U.S. and lower-than-expected workers’ wages also contribute to the program’s financial woes. These factors mean less money is being paid into the system. To address the shortfall, the trustees note that increased revenue, perhaps through a payroll tax hike, will be necessary, or benefits will need to be reduced.
Should Congress fail to act, workers could face a 23% automatic benefit cut in the near future.
Social Security’s financial outlook dulls
Social Security’s financial challenges are a primary concern for non-retirees across all age groups in the U.S. While older generations nearing retirement are more likely to be grandfathered into the current rules if changes are made, younger Americans face a higher probability that their future Social Security benefits will differ from what current retirees receive.
Kevin Brady, a certified financial planner (CFP) at Wealthspire Advisors, says “Delaying substantial changes to the program now means significantly larger changes would be necessary later, like much higher tax increases or benefit cuts.” This perspective is shaping how financial planners, including Brady, are advising their clients for the future. “Stress-testing plans with reduced Social Security benefits can be helpful, often prompting conversations about increasing savings or making other long-term adjustments.”
Owen Malcolm, CFP at Apollon Wealth Management, suggests that full benefit cuts are unlikely, as no politician wants to be responsible for cutting a program many Americans rely on. “Their energy is best spent on what they can control: early planning, saving, and thoughtful decision-making,” says Malcolm.
Both planners agree that while significant changes to the program are possible, they are often incremental rather than drastic. Malcolm believes that it’s more likely policymakers will raise revenue through tax changes or adjust the wage cap, rather than cutting benefits outright. “History suggests that not all reforms or changes are negative,” he notes.
The future of Social Security remains uncertain, but proactive planning and adjustments can help mitigate potential impacts on retirement for younger generations.
