By Shane Cummings, CFP®, AIF®, Wealth Advisor & Director of Technology/Cybersecurity
How much can you expect to receive in Social Security benefits when you retire? In the past it was usually as simple as finding a copy of your projected Social Security benefits and deciding on the age to claim. And in some cases, coordinating those benefits with your spouse’s benefits. Increasingly, with concerns about potential Social Security benefit cuts, maybe current and future retirees are wondering what they can actually expect to receive.
According to a U.S. Treasury Report from May 6, 2024, the Social Security Trust Fund (officially, the Old-Age and Survivors Insurance (OASI) Trust Fund) will be unable to continue paying scheduled benefits to beneficiaries as early as 2033. While this doesn’t mean that beneficiaries will stop receiving all payments, it could potentially lead to a reduction in benefit payments. The Report calculated that funding will be sufficient for retirees to receive just 79% of their scheduled benefits.
It seems likely that these numbers will continue to shift. For example, a February 2025 working paper from the National Bureau of Economic Research found that excess deaths caused by the COVID-19 pandemic will reduce future expected payments from Social Security. Adjusting for lost tax revenue from those beneficiaries and increased survivor benefits, researchers projected a reduction of $205 billion in future Social Security payments.
Will the Social Security retirement age be raised in 2025?
Given that we are less than 10 years away from a potential across-the-board cut in Social Security benefits, now is the time to act for our political leaders to make needed reforms. One current proposed option is to raise the Social Security retirement age for future generations. Currently, the Social Security Full Retirement Age (or FRA) is age 67 for those born in 1960 or later.
Changes to the retirement age have been made before. In 1983, Congress approved an amendment to gradually push the FRA up from age 65 to where we stand today. Given our population’s increasing longevity, it seems reasonable that changes to the Social Security claiming age should reflect these longer life expectancies. A proposal to adjust the FRA for future Social Security benefits from 67 to 68, 69 – or even 70 – doesn’t seem that far out of the realm of possibility.
Other potential measures to reduce the potential looming insolvency
A change to FRA alone likely won’t shore up the Social Security Trust Fund. But it could have a positive impact if combined with other possible changes. To be truly significant, any Social Security reform package would probably also need to raise additional revenue or change the benefit formulas.
Social Security is funded by payroll taxes. But there is a cap on how much of your earnings are subject to Social Security tax – for 2025, that number is $176,100. In addition to a FRA raise, a strong Social Security reform package might also change the formula and the current limits on the payroll tax ceiling. In addition, the payroll tax rate could be raised. Or the types of income taxed could be expanded.
How to plan for retirement amidst Social Security uncertainty
If you’re a younger saver and want to plan conservatively, it may be worth putting extra savings aside. This could cover the assumption that you won’t end up receiving 100% of the Social Security benefits you’re currently “scheduled” to receive. If you end up with less Social Security income in retirement, you’ll need more savings to replace that. Alternatively, you might plan to retire a little later to offset a later Full Retirement Age – or start envisioning and planning for a somewhat leaner lifestyle in retirement.
If you’re nearing retirement, it’s very important to do a deep dive into your expected sources of income in retirement and how much or little of your expected spending needs will be covered by Social Security and other financial assets. During this transition period, it’s important to get a realistic idea of how much you can expect to sustainably draw on your accumulated savings and investments in retirement.
Strategic Social Security and Retirement Planning with Halbert Hargrove
At Halbert Hargrove, we assist our clients as they plan for major life transitions and work to align their financial goals with their resources. For clients with some flexibility, we can analyze claiming Social Security at different ages and potential cumulative benefits over your lifetime. We can help you put together a comprehensive plan that incorporates your expected Social Security benefits and also factors in your other income sources and retirement date to help fine tune your financial goals and determine realistic scenarios. Please contact your HH service team to get started.
Disclosure:
Halbert Hargrove Global Advisors, LLC (“HH”) is an SEC registered investment adviser located in Long Beach, California. Registration does not imply a certain level of skill or training. Additional information about HH, including our registration status, fees, and services can be found at www.halberthargrove.com. This blog is provided for informational purposes only and should not be construed as personalized investment advice. It should not be construed as a solicitation to offer personal securities transactions or provide personalized investment advice. The information provided does not constitute any legal, tax or accounting advice. We recommend that you seek the advice of a qualified attorney and accountant. All opinions or views reflect the judgment of the author as of the publication date and are subject to change without notice. All information presented herein is considered to be accurate at the time of writing, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted.
