The Challenges Facing Social Security

The Social Security Administration has disclosed that future reductions to Social Security benefits are possible, if not probable.

By 2033, the payroll taxes collected will only be enough to pay 77% of scheduled benefits. Consequently, every American faces the risk that their promised Social Security benefits may be cut by 23% in 2033.

The challenges facing the Social Security system continue to grow. In 1965, for every Social Security recipient, there were 5.1 workers paying into the system. Today, that ratio has fallen nearly in half, with only 2.7 workers to support each retiree. Experts forecast that number will continue to fall into the future. In addition, people are living longer than ever before. When Social Security began, the average life expectancy at birth was approximately 65, meaning that Social Security was only intended to provide income for a few years. Today, life expectancy at birth has risen to 84.6 years, which means many people will receive income from Social Security for two decades or more.

Social Security Risk Score Factors


Your savings and your income may be a significant factor in whether you receive your full benefits as promised. Many government programs means-test for eligibility and politicians have proposed rule changes to reduce Social Security benefits for many Americans.

In 2020, individuals with an income within the top 16% of US households were not eligible to receive the Economic Impact Payments (commonly known as the COVID stimulus checks).

Furthermore, the premiums paid for Medicare Part B increase based upon your income, and by 2031 over 13,500,000 retirees will be means-tested for Medicare.

Higher incomes and larger retirement savings increase the risk that you may be means-tested for Social Security benefits in the future. For anyone who earns over a certain dollar amount, the government may decide you do not need Social Security as much as others, and therefore, they may change the rules and reduce your benefits. Politicians on both sides of the political aisle have proposed various means-testing rules to alleviate some of the financial strain on Social Security and a variety of other government programs.

Voting Power:

If Congress waits until the last minute to fix Social Security, as they did in 1983, then they will be forced to either cut benefits by 25%, raise taxes by 33%, or most likely, a combination of both.

Historically, political pressure has suggested limited reductions and favored increases in taxation to be shouldered by younger generations rather than for individuals at or near retirement.

By 2036, Baby Boomers will only control approximately 18% of the electorate. If younger generations are asked to shoulder the burden of increases in taxation, how will they want to prioritize funding for current retirees as compared to their own priorities, such as climate change, free childcare, free college, student debt relief, child tax credits, universal healthcare, and universal basic income? Where will Social Security fit in?

The Social Security Risk Score identifies current and future trends in your generational voting power.

Life Expectancy:

Almost every investment product sold today must disclose that “past performance is not indicative of future returns” because we all know the future is uncertain and unpredictable. Social Security is no different; looking to the past does not tell us what will happen in the future, but history often repeats itself.

If Congress cuts benefits, it wouldn’t be the first time. In 1977, Congress recalculated the formula that determines benefits, and the results dramatically reduced the amounts promised to Americans 60 and younger.

In 1983 Congress was forced to act again and further reduced benefits by increasing the age at which retirees become eligible for full benefits.

Consequently, every American born after 1937 is already receiving or is scheduled to receive reduced benefits versus previous generations.

Did You Know?

Social Security is a Key Part of Many Americans’ Retirement Plans

Many households expect to receive over $1,000,000 from Social Security during their retirement years, and a cut in Social Security could lead to a loss of over $100,000 in income.

A reduction in income from Social Security could exacerbate other common retirement concerns, including:

Outliving your Savings:

The longer an individual lives, the more likely it is they will outlive their savings. Longevity risk, or the risk that you may outlive your savings, can impact your quality of life in retirement. A Social Security reduction would significantly increase your chances of outliving your savings.

Health Impairments:

It could cost someone over $300,000 to pay for three years of assisted living plus two years of nursing home care. Without protection in place, an individual may need to pay for this care with withdrawals from their personal savings. A cut to your Social Security income would make it much harder to pay for long term care without depleting your savings.

Legacy Wishes:

People want their money to work as hard for them in retirement as they did to earn it. That means not only does your money need to provide for the lifestyle you want in retirement, but it also needs to last long enough to leave a benefit to your children, grandchildren, or a favorite charity. If the government cuts your Social Security income, you may have to leave behind a reduced legacy or none.

Confidence Starts with Having a Plan

While the potential for Social Security reductions is certainly concerning, it is important to acknowledge that there are areas you still have control over.

Talk with a Financial Professional

A financial professional can help provide an experienced opinion and recommend strategies to offset potential Social Security cuts.