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Opinion: Plan for the worst-case scenario of lower expected Social Security payments by finding income elsewhere


If your retirement date falls after 2034, the current estimate of your future Social Security benefits may not hold up.

That’s when the government fund that sends out the monthly checks could run short of money to pay out in full. If Congress doesn’t shore up or place curbs on Social Security, anyone in the range of 55 or younger today might face reduced benefits. 

“Two years ago, I would have said that’s impossible. The adage was always that there’s not a politician on the planet who will keep their job if they talk about reducing Social Security,” says Kelly LaVigne, vice president of consumer insights at Allianz Life. 

But in the current economic and political climate, it’s not irrational to worry about Social Security going away or being crimped. A Northwestern Mutual 2022 Planning & Progress Study found that 43% of respondents weren’t confident Social Security would be there for them when they need it. 

No matter the outcome of the 2022 midterm elections, Congress is going to be evenly split and will continue to be hampered by gridlock. Changes to Social Security could come simply from legislative inaction if it lasts long enough.

Meanwhile, the latest Consumer Price Index numbers show that inflation is slowing but it’s still high enough to cause concern. That could lead to another big Social Security cost of living adjustment (COLA), eroding the fund even faster. A month ago, the government said COLA will increase 8.7% in 2023, the biggest increase in four decades.

So if you’re under 55 years old, it’s time to review what retirement looks like for you with reduced Social Security. 

How to do the new math

Mind you, you don’t have to go all the way down to zero on your estimate of your future Social Security benefits. 

“Young people should still be optimistic about receiving some level of Social Security benefits,” says Geoff Manville, senior director of government affairs at Mercer, a benefits consultant. 

When Devin Carroll, a Social Security expert who founded the blog Social Security Intelligence, runs his own retirement projections, he cuts the number in half. How that impacts you depends on the amount you have saved and the income you need to generate in retirement.

“If you take somebody who is around 40 and earns $100,000 now, their projected Social Security is around $3,000 per month. Then you have to look at how much you need to have in retirement money to replace that. It’s a large sum of money,” Carroll says. 

You have to consider a few more parameters, such as whether Social Security will continue to pay spousal benefits to nonworking spouses, which can be as much as half of the primary earner’s check amount. Or, perhaps, this might just be limited at higher income levels.

Social Security’s full retirement age may also get pushed later than 67 in the future, so you might have to factor in more years of covering your expenses. There are also some provisions in the proposed Secure 2.0 bill that may affect future retirement funding, such as the age to start required minimum distributions (RMDs) from qualified plans. 

To do rough calculations, you can use an online retirement calculator that enables you to adjust the amount for Social Security. 

If you look at that 40-year-old couple making $100,000, you can see how much difference it makes for them to retire at age 67 and get $6,000 a month combined in Social Security versus getting half that amount. If the couple saves 10% of their salaries, and they’ve already saved $50,000 to date, they’d have $1.1 million at retirement and would be on target to cover more than 60% of their current expenses, according to the AARP calculator. With half the amount of Social Security, that couple would have a shortfall of nearly $750,000, all else being equal. 

In the worst-case scenario, where only one spouse works and the total family benefit is reduced to just $1,500 a month, there could be a shortfall of over $1 million at retirement. 

How to find replacement income

The answer to covering the missing money is one of those simple things that’s nearly impossible to do: You have to save more. 

Better to know that now than be caught short when it’s too late. You can start with bumping up contributions to your 401(k).

“Taking full advantage of workplace retirement plans can help all workers, regardless of age, and build meaningful savings for their retirement years,” says Manville. 

But it may take more than that.

“Have a traditional 401(k) and Roth, but don’t ignore nonqualified accounts. Those have some benefits too,” says Carroll.

He says to keep in mind that you need some cash on hand to cover living expenses before RMDs kick in. If you keep things simple with a portfolio of ETFs, you can minimize the tax impact, he adds. 

If you want to replace the guaranteed income of Social Security with some kind of monthly check until you die, it’s difficult to match. You’d have to look at some type of annuity product, which can be costly and complicated.

“Social Security is one of the few assets that has the ability to pay for two lives that also can increase with cost-of-living adjustments to offset the effects of inflation. It’s also tax-advantaged income,” says LaVigne. “There’s not a lot out there that can do that.” 

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