Social Security Won't Run Out, But Here Are 4 Ways Payments Could Be Less

A recent study from the National Institute on Retirement Security found that over 40% of American seniors rely solely on Social Security income in retirement.

With so many people leaning on Social Security and rumors of potential insolvency, it's natural to fear that you can't count on Social Security benefits in the future.

The reality is that Social Security is not likely to run out. Instead, the real benefits that retirees receive from Social Security could decline in the years to come. You may need to find ways to supplement your Social Security if you're relying on it alone.

Let's look at Social Security and the reasons why benefits could shrink in the future.

Some of the confusion about Social Security benefits centers around where the funds come from. The program invests in two trust funds: the Old-Age and Survivors Insurance Trust Fund and the Disability Insurance Trust Fund. Both of these accounts are managed by the Department of Treasury.

The Social Security Trust Funds are invested in specially issued Treasury securities.

While Social Security Trust Funds partially cover monthly Social Security payments, payroll taxes from current workers also contribute. In fact, payroll taxes paid by current workers finance the bulk of Social Security benefits.

When you picture Social Security running out, you likely think benefits for retirees will stop. Although that's a disastrous picture, it seems unlikely to happen. Instead, Social Security benefits might shrink in the years ahead.

For example, the Social Security chief actuary believed that 2035 might be the year the Social Security Trust Funds are depleted. If that happens, benefits wouldn't drop to zero.

Instead, the projections indicate that 83% of benefits will continue to be paid out without changing how the program is funded. Over time, benefits could continue to fall. Projections show that 73% of benefits will be paid out by 2098.

To avoid falling benefits, making changes to the Social Security system sooner rather than later could help. But without a crystal ball, it's impossible to determine when or if politicians will make the necessary changes to the program to prevent benefit cuts.

Social Security offers retirees an annual cost-of-living adjustment (COLA). Under this adjustment, Social Security beneficiaries receive a bigger check based on the inflation rate. Higher inflation often leads to a higher COLA.

For example, retirees saw an 8.7% COLA in 2023 and a 5.9% COLA in 2022. Without a big COLA, retirees have a harder time stretching their Social Security income to cover higher living costs.

In future years, it's possible that retirees could see a lower COLA. Ultimately, this makes it more difficult for retirees on a fixed income to cover increasing costs.

As an individual, it's impossible to make any sweeping changes to the Social Security system. However, you can get involved by calling your lawmakers and asking them to take care of the issues facing Social Security.

Beyond your Social Security benefits, there are ways you can plan for a comfortable retirement regardless of what happens to Social Security. to protect your financial stability in retirement. Read on to make your plans.

Once you reach the age of 18, you can create a "my Social Security account" on SSA.gov. Here you can track how much you have paid into Social Security, get your annual statement, and see how much your monthly benefit may be at various ages.

When the time comes to retire, you can enroll through this account, set up your direct deposit, and more.

Social Security represents one part of your retirement planning. But the program was never meant to be the sole support for retirees. While working, max out your 401(k) contributions or invest money in an IRA up to the legal limit.

In addition, creating a portfolio of low-cost mutual funds or individual stocks that you can hold for the long term may provide a good foundation for your retirement.

If you have high-interest debt, such as credit card debt, do your best to eliminate it from your balance sheet before you retire. Paying off high-interest debt will be harder on a fixed income, but eliminating it can also relieve financial stress.

Throughout your life, you should have an emergency savings fund of about three to six months of your living expenses. This will protect you in case of a layoff, sickness, a natural disaster, or any other unexpected expense.

Having cash to cover bills that aren't in your budget may keep you from credit card debt and keep your financial stress low.

Although you should expect to receive Social Security benefits, you may still need to supplement your benefits to cover your cost of living. Or you may want to work in retirement.

Brainstorm ways to earn extra funds, such as selling your beautiful woodworking pieces, working a few hours a week in your favorite local store, or consulting in your profession.

It's a relief to know that Social Security likely won't go bankrupt anytime soon. However, you should be aware that benefits may not be as robust as they are today.

The good news is that you can take action to build a solid financial foundation designed to help you survive and thrive in retirement, regardless of the size of your monthly Social Security deposit.

If you aren't sure if you are prepared for retirement or how to get started, get advice from a financial advisor. They can guide you through planning a financially stable retirement. And that may bring peace of mind.