Letting Social Security dry up would be 'political suicide,' says retirement expert—but young people still shouldn't count on it

Americans are confident that they can put themselves in a position for a successful retirement. They just fear the government won’t hold up its end of the bargain.

Some 72% of Americans expect to have had a successful career by the time they call it quits, and 71% say they understand how much they can spend now versus how much they should save for later, according to a 2022 survey from Northwestern Mutual.

But a little more than half — 56% — say they expect Social Security to be there when they need it.

They’re not wrong to be skeptical. By the Social Security Administration’s estimates, excess reserves in the trust fund from which benefits are paid out will deplete by 2034.

“There is a fear out there that it being depleted means it’s going away, but it would be political suicide to take away the benefit,” says Beau Henderson, a retirement specialist with RichLife Advisors.

But even if it doesn’t go away in its entirety, Social Security could be diminished or governed by different rules by the time millennial and Gen Z investors retire, experts say.

With that in mind, here’s how financial pros say you can safely factor Social Security into your retirement plans, and why it’s worth it to start keeping an eye on it, even if you’re young.

Social Security is drying up, but not likely to disappear

If Americans are worried that Social Security will run out of money, it’s because the program is, in a way, slowly running out of money.

Social Security is funded via payroll deductions. Currently, salaried workers and employers each pay a 6.2% tax rate toward the program, while self-employed workers cover the entire combined 12.4%.

But the money you put in isn’t set aside specifically for you. Instead, it goes into a trust fund that pays out to current beneficiaries, such as retirees, survivors of deceased workers, disabled workers, and their dependents.

Currently, the amount of money collected through payroll taxes exceeds the benefits that the program pays out. But that’s about to shift as more members of the massive baby boomer generation retire. If the excess reserves in the trust fund deplete by 2034 as expected, the SSA will have to start paying out 78% of retirees’ full benefits.  

Rather than let the program scale down completely, “it’s more likely that Congress will make changes and kick the can down the road,” says Henderson.

Possible tweaks he envisions include increasing the ages at which benefits kick in, effectively forcing retirees to wait longer to claim benefits in order to maximize their payout. “Full retirement age is now 67 [for those born in 1967 or later]. For younger people, maybe it’ll be more like 70. Instead of early benefits at 62, maybe it’s 64.”

Young people and Social Security: ‘It’s not your grandparents’ retirement’

The age thresholds for Social Security are a major factor in retirement planning because the age you begin to claim benefits affects the size of the benefit you get.

Currently, a worker can retire as early as 62, but that can result in a 30% ding in their benefit. Conversely, if you wait to take your benefits until after you’ve hit your full retirement age, your payout will go up by 8% per year until you max out at 70.

Those ages may seem far off to younger investors. But the changing rules that Henderson talks about would have a material affect on your long-term plans, since most financial planners factor Social Security payments in when calculating how much you’ll need to invest to earn a particular income in retirement.

If you’re expecting to get a diminished payment, or to have to wait longer to get it, you may have to invest more now.

Investing as much as you can while you’re young should really be the goal, says Henderson. Gone are the days when most workers’ portfolios were part of a “three-legged stool,” buttressed by Social Security and a private pension.

“It’s not your grandparents’ retirement,” he says. “But you still have time to take advantage of time and compounding.”

In other words, your portfolio is going to do much of the heavy lifting when you’ll need income in retirement.

“The average household doesn’t start getting serious about retirement until it’s right on the horizon,” Henderson says. But, “if you start building assets early, that Social Security benefit is like a cherry on top.”

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