Social Security is a critical source of retirement income for millions of Americans. However, there is ongoing concern about the Social Security’s long-term financial sustainability.
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To figure out how you might be impacted, GOBankingRates analyzed projected Social Security benefits over the next decade, both with and without potential funding cuts.
With cuts and no cuts, here’s what your Social Security benefit should be in the future.
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Projecting Future Social Security Benefits
Based on historical cost-of-living adjustments (COLA), we can forecast average monthly Social Security benefits over the next 10 years.
The current average monthly benefit amount is $1,796.31 as of October 2023. While the announced 2024 COLA increase will be 3.2%, for this exercise we’ll use the 2.6% average annual COLA increase from the past decade. Here’s what the average benefits for the next 10 years would be:
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Year 1: $1,843.01
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Year 2: $1,890.93
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Year 3: $1,940.09
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Year 4: $1,990.53
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Year 5: $2,042.28
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Year 6: $2,095.38
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Year 7: $2,149.86
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Year 8: $2,205.76
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Year 9: $2,263.10
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Year 10: $2,321.94
This projects the average benefit reaching $2,321.94 per month in 10 years based on historical COLA trends.
However, some experts warn the Social Security Trust Fund could be depleted in 10 years. If this occurs, benefits could be cut to around 77% of the projected amount to match available revenue.
Based on the projections above, that cut would mean a drop in average monthly Social Security benefits from $2,321.94 to $1,787.89.
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Key Facts on Retiring Baby Boomers
As Baby Boomers reach retirement age, Social Security benefits are becoming an increasingly important income source. Here are some key facts on retiring Boomers from H&R Block’s 2022 Outlook on American Life report:
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44% of Baby Boomers are already retired. Another 38% are still working full-time.
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65% are dissatisfied with their income growth, with 42% saying they are financially worse off than last year.
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38% believe their financial situation will remain the same, while 28% think it will deteriorate.
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13% are working part-time and 10% have side hustles to supplement income.
With statistics showing many Boomers on shaky financial footing, potential Social Security cuts could deliver a significant blow to this demographic.
Expert Tips To Plan For Reduced Benefits
Tyler Meyer, a certified financial planner and founder of Retire to Abundance, said planning is the key to dealing with the possibility of lower Social Security benefits.
“Assess your readiness by understanding your complete financial picture including all potential retirement income sources,” Meyer said. “Consider how inflation could impact your expenses. Relying solely on Social Security poses risks, so explore alternative income streams like investments, part-time work, or rental income. Diversifying income can create a safety net.”
Meyer said giving your retirement savings time to grow during your working years can also help you weather future Social Security cuts.
“Start early, live below your means, and take advantage of compound interest,” he said. “This allows you to invest more while aligning with your retirement lifestyle.”
The Takeaway
While no one knows exactly what the future may hold for Social Security, planning for the possibility of reduced benefits is prudent. Following expert guidance to diversify income, implement sound investment strategies, and seek professional advice can help mitigate risks.
With proactive preparation, impacts can be minimized. Discuss your specific situation with a financial advisor to make the best choices for your retirement.
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This article originally appeared on GOBankingRates.com: Social Security: With Cuts and No Cuts, Here’s What Your Benefit Should Be in 10 Years
