Social Security Sustainability: What You Should Know
Social Security has been a hot topic for years, but lately, it appears more people are asking about its future. Headlines surrounding the recently passed Social Security Fairness Act, along with the release of the 2024 Trustees Report, have sparked renewed concerns: Will benefits still be there for me? Should I plan for less?
Let’s take a look at what’s really happening and how thoughtful planning can help you stay grounded, regardless of future reforms.
What the Trustees Report says
Each year, the Social Security Trustees release a report on the long-term health of the system. The 2024 report projects that the Old-Age, Survivors, and Disability Insurance (OASDI) Trust Fund will be able to pay 100% of scheduled benefits until 2035, which is unchanged from last year’s forecast.
Importantly, if the reserve fund is depleted in 2035, benefits will not stop. Instead, the system is projected to continue paying about 83% of scheduled benefits, based on ongoing payroll tax income. That number could gradually decrease to around 73% by 2098, based on current demographic and economic assumptions.
In other words: even with no changes to the system, most recipients can expect 73% or more of their projected benefits to be paid.
What reforms are being considered?
To restore long-term sustainability and cover 100% of benefits through 2098, several solutions are on the table, including:
- Raising the total payroll tax rate from 12.4% to 15.73%
- Reducing benefits for all recipients by 20.8% across the board
- Reducing benefits by 24.8% for only future recipients who become eligible after 2025
- Other measures, such as raising the full retirement age, reducing cost-of-living adjustments (COLAs) or removing the income cap on FICA taxes
Lawmakers are likely to adopt a combination of these, and historically, changes have been phased in gradually and have not impacted current retirees.
How we account for uncertainty in your plan
We build our clients’ financial plans with the assumption that some level of Social Security reform is likely, and we’ve already baked that into our planning assumptions.
By default, we model Social Security benefits growing at 2.1% annually, which is lower than the 40-year historical average of 2.8%. This reflects our expectation that cost-of-living adjustment increases may be scaled back in the future.
For clients under 50 (born in 1974 or later), we reduce projected benefits by 25% to reflect the higher likelihood that changes will impact younger, higher-income individuals.
And for those with deeper concerns, we can model customized “what if” scenarios that account for tax increases, delayed benefits or partial reductions to help you understand your options and stay on track.
What you can do now
We believe the most important thing is to stay focused on your overall plan. Social Security is only one part of your retirement income strategy. Your financial plan is designed to provide clarity even amid uncertainty, and it includes built-in stress testing for scenarios like this.
Yes, the system faces funding challenges, but that doesn’t mean Social Security is going away. Even if reforms are implemented, most retirees are currently still expected to receive the majority of their scheduled benefits. By taking a conservative approach in your plan and staying proactive, we can help ensure you're prepared for whatever comes next.
If you’re concerned about when to claim benefits or how possible changes could affect your long-term outlook, your Corient Wealth Advisor is here to help.
ABOUT THE AUTHOR
Neil Teubel, MS, CFP
Neil is a Partner, Wealth Advisor and Investments Leader in our Itasca, IL, office. His passion is helping executives, widows and retirees live full lives while navigating their wealth planning complexities. Neil has his master’s degree in financial planning and has frequently been named to both Forbes and Chicago Crain’s list of Top Wealth Advisors. He joined legacy firm BDF in 2011.
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