Here’s how the impending Social Security deficit could affect your retirement plans

A new report from the Social Security Administration showing that benefits could be cut sooner than expected could sound the alarm bells, especially among those planning to retire in the next decade.

Social Security excess reserves are expected to run out in 2033, a year ahead of schedule, according to Social Security and Medicare trust fund trustees. This means that the eligibility program will only be able to pay 76% of the planned benefits at that time if nothing is done to increase the fund.

“People who plan 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, chief executive of Betterment for Business.

The economic fallout caused by the pandemic has changed the funding outlook for Social Security. Employment, incomes, interest rates and GDP declined significantly last year and will gradually recover over the next two years. The pandemic has also increased the death rate, slowed the birth rate and reduced, all of which affected deficit projections, according to the report.

This only exacerbates the already crippled agency.

“Social Security paid more than it received,” Scott Thoma, retired strategist at Edward Jones, told Yahoo Money. “At some point, they won’t have any reserves left to draw from. “

Thoma said the government can implement the same levers it pulled four decades ago, such as raising the age of eligibility for Social Security and payroll taxes, but it is a matter of priority and other pressing problems of the country.

“There are a lot of things that they see that are higher priorities in the short term,” he said. “It’s not like it’s not a problem. It’s just a 2033 problem versus a 2021 problem.

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Americans should factor in the potential reduction in their retirement plans. Financial experts encourage a stress test of the pension plan for multiple outcomes related to health, employment and living expenses, and when to apply for Social Security benefits, which should be treated as a supplement to the saving.

“[Social Security isn’t] will be the only cushion for you after you stop working, ”Carlisle said. The program was designed to provide only 30-40% of your pre-retirement income and not fully support retirement, Carlisle said.

Considering that the average individual Social Security benefit is around $ 1,500 per month – or $ 18,500 per year – the average per year would equate to $ 14,060 after the benefits cut by 24%. That’s a loss of almost $ 90,000 over a 20-year retirement.

To calculate what your benefits will look like after the estimated reduction, use your Social Security statement. Take the estimated monthly benefits based on different filing ages, then reduce them by a quarter, Thoma suggested. This number is what you can expect per month.

If that’s not enough – in addition to your own savings – savers over the age of 50 can contribute more than the annual maximum to their retirement accounts, called catch-up contributions. Young savers should regularly contribute as much as they can to employer-sponsored plans or to IRAs or Roth IRAs that can be set up independently.

“You want to make sure that you take advantage of retirement programs as they exist before you turn 50,” she said.

Stéphanie is a reporter for Yahoo Money and Having dinner, a new personal finance site. Follow her on Twitter @SJAsymkos.

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