Here's how Social Security's looming shortfall could affect your retirement plans - Yahoo Money

Sep 15, 2021

A new report from the Social Security Administration showing benefits could be reduced sooner than anticipated could set off alarm bells — especially among those planning to retire within the next decade.

“People who are looking to retire in their early 50s or in the next 10 or 15 years can probably expect less than 80% of that benefit,” Kristen Carlisle, general manager of Betterment for Business, told Yahoo Money.

The pandemic also elevated the mortality rate, slowed the birth rate, and reduced, all of which affected the shortfall projections, the report said.

“Social Security has been paying out more than they’ve been taking in,” Scott Thoma, retirement strategist at Edward Jones, told Yahoo Money.

Thoma said the government can enact the same levers it pulled four decades ago like increasing the full age of Social Security eligibility and payroll taxes, but it’s a matter of prioritization and the country’s other pressing problems.

Americans should factor the potential reduction into their retirement plans.

Financial experts encourage a retirement plan stress test for multiple outcomes relating to health, employment, and living expenses, and when to file for Social Security benefits, which should be treated as a supplement to savings.

“[Social Security isn’t] going to be the sole cushion for you after you stop working,” Carlisle said.

The program was conceived to provide for only 30% to 40% of your pre-retirement income and not fully support retirement, Carlisle said.

Considering the average individual Social Security benefit is around $1,500 monthly — or $18,500 annually — the average per year would equal $14,060 after the 24% benefit reduction.

To calculate what your benefits will look like after the estimated reduction, use your Social Security statement.

“You want to make sure that you're taking advantage of retirement programming as it exists before you turn 50,” she said.

Stephanie is a reporter for Yahoo Money and Cashay, a new personal finance website.