social security benefits

The Future of Social Security Benefits

The Social Security Administration periodically analyzes the financial security of the program, and adjusts various factors to ensure its sustainability. However, it’s suggested by many reports that it will suffer a benefit reduction in 2033.

It’s therefore no surprise that most millennials have said they won’t be factoring Social Security into their retirement strategy. After all, they’ve been hearing for several years that the retirement and disability program is going to break down. This belief is based on a number of predictions. For example, the most recent Social Security Trustees Report. It tells us that Social Security’s trust fund reserves will be depleted by 2033. This is one year earlier than what last year’s estimation said: The window is shrinking.

The trust fund running out of money would mean a benefit cut for the program’s 67 million beneficiaries. And, experts say those cuts could have a negative impact on millions of older Americans.

How Would This Affect You?

A number of people have misinterpreted predictions about the future of Social Security. For starters, they aren’t certain by any means. The trust fund may deplete, or it may not. But, even if it does, the program will still be able to pay the majority of its benefits. Unfortunately, a lot of people mistakenly think that Social Security will go completely bankrupt, and that they won’t receive any benefits at all. Despite what you may have heard, we can assure you that this is not the case.

But, if the trust fund is depleted, it would cause a significant drop in benefits. Specifically, the value of your benefit would drop immediately be around 25%. The Social Security benefit paid to lower-rage earners would be hurt the worse by this, of course, due to how the system is designed.

“Currently, retirees who were low earners while working — defined as earning about $30,000 a year while employed — get about 50% of their income replaced from their Social Security benefits. But that would drop to about 40% of replacement earnings in 2033 if the trust fund runs out of money.” High earners, on the other hand, would see their replacement rate drop from 25% down to 20%.

It currently seems very likely that the Social Security trust fund will end up running out of money by 2033. However, it might not. Lawmakers may be able to prevent it, and are currently trying to. There are a number of potential changes they could make. In fact, there are proposals from Democrats, Republicans, and bipartisan committees alike, all trying to help this issue. For example, “Republicans have proposed pushing the retirement age up to 70, effectively cutting between 2 to 3 years of benefits for today’s workers.” 

When to Start Social Security Benefits

Many financial analysts suggest that the optimal age to start collecting Social Security benefits is the latest it can possibly be delayed to: age 70. However, that’s what it is assuming the benefit reduction in 2033 doesn’t end up happening: Assuming it does, the landscape is changed.

And besides, when you should start taking Social Security depends on your individual situation. If you want to figure out what the answer is for yourself, you can use a website called Open Social Security. Open Social Security is a free online tool that analyzes strategies for the best time to claim Social Security Benefits.

Open Social Security’s analyses are based on the assumption that users will live to their expected age. Unexpected longevity would also change your best course of action: If you end up living unexpectedly long, it’s recommended that you delay the start of benefits longer than you otherwise would. But, of course, longevity isn’t something that you can predict.

Here are some examples of the best course of action for different people:

For a married couple turning 62 this year, the optimal age for the husband to start benefits is 70, and for the wife, it’s one month after turning 62. This strategy hasn’t been affected by the possibility of a benefit reduction.

For a single man turning 62 this year, meanwhile, he should start at the age of 67 years, eight months. The assumed benefit reduction would change this, instead making it optimal for him to file right away.

Lastly, for a single woman, it went from 68 years, eleventh months, to 67 years, seven months.

What You Can Do

One factor to remember, though, is that all of these analyses aside, whether you claim Social Security benefits as soon as you can or delay them for any amount of time, you will not escape from a benefit reduction. But, you can still make the best of this bad situation: It’s better to only get 75% of a large benefit amount than 75% of a smaller one.

Social Security will be the bedrock of your strategy going into retirement. For this reason, it’s well worth your time considering what the perfect strategy for when to claim it is. This should be done, regardless of your current circumstances, and regardless of your current level of optimism or pessimism towards if lawmakers will find a way to fix this issue.

However, Social Security won’t keep you completely covered in retirement, regardless of how you choose to handle it. Social Security benefits only account for around 40% of the income you’ll need in order to keep your head above water throughout your retirement. Statistics show that you’ll need around 70% to 80% of the income you were receiving while still working.

Fortunately, there are some other sources of income you can use to help yourself get by. If you’re concerned about if you’ll have enough to retire and would like to learn more, reach out to us.

Sources: Forbes, CBS,

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