What happens if Social Security benefits run out?

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Q. What happens if Social Security benefits run out?
— Concerned

A. It’s a good question and one many Americans have contemplated.

Politicians often fear getting into the Social Security debate, but they agree on one thing: something will have to get done.

If Congress does not intervene, Social Security will only be able to fund approximately 75% of the benefit for each retiree, said Jody D’Agostini, a certified financial planner with Equitable Advisors/The Falcon Financial Group in Morristown.

They would therefore receive a reduced benefit, she said.

Social Security is funded by payroll taxes where both the employer and employee contribute 6.2% of wages up to a maximum that is indexed each year.

For 2023, that base is $160,200, D’Agostini said.

If you are self-employed, then you would pay both pieces, or 12.4%, up to the base.

“In the past, the reserve amount has exceeded the obligations, but with declining birth rates, there are fewer workers paying into the system, and more retirees collecting as baby boomers are retiring at over 10,000 a day, setting up a challenging scenario,” she said.

She called Social Security “extremely valuable to retirees,” with many relying solely or mostly on this benefit for retirement income. This will ultimately have to be addressed by Congress.

One suggestion has been to delay the retirement age before you can start benefits.

“With life expectancy increases, working longer may make sense for retirees,” she said. “Also, Congress could increase the taxable wage base, and/or cut benefits. The last time this occurred was in 1983 and Congress came together to increase the full retirement age to 67 from age 65 over time.”

One of the fears is that retirees anticipating this shortfall may elect to collect their benefit when first allowed at age 62, she said.

“This would permanently reduce their benefit, which ultimately could be troublesome,’ she said, calling longevity “the largest risk in retirement.”

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This story was originally published on Feb. 23, 2023.

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