By Brent Matthew
Americans nearing retirement may be facing a significant challenge ahead, one that could drastically impact their financial plans.
According to research by PensionBee Inc., a pension fintech firm, the Social Security trust fund could run dry as soon as 2033. If it happens, those receiving payments from the fund could see their benefits get slashed by between 19% and 23%—as much as $138,000.
That sharp decline would force retirees to make up for the gap on their own. If they primarily rely on Social Security payouts for income, the effect on their retirement plans could be catastrophic.
How Would Your Retirement Plan Hold Up?
Look, nobody likes to be scared. And financial advisors really don’t like to be the ones doing the scaring. But the seriousness of this prospect can’t be overstated.
If a retiree gets $1,800 from Social Security benefits each month, losing 20% of their income would amount to a $360 loss. Stretched out over a year, that’s more than $4,000. If a person’s retirement extends to 30 years, that would total more than $120,000 in lost income. The longer they live, the larger the gap will get.
That would be more calamitous than a minor budgeting inconvenience in your retirement plan. These reductions would hinder your ability to afford needs like housing and healthcare. On a gut level, it could be demoralizing to your confidence in retirement—a time that’s meant to be enjoyed.
How You Can Shield Your Retirement Fund Now
As grave as these cuts could be, they’re no reason to lose focus. There are some proactive steps you can take with your retirement plan that could lessen the impact down the road.
Increase Your Savings Now
Every contribution you can make to your retirement plans (401(k)s, IRAs, or investment accounts) matters a great deal. Just a small increase to your normal contribution amount can make a huge difference when it’s time to start taking distributions. While you’re still actively employed, think about routing funds from raises, bonuses, or savings into your retirement accounts.
Find Guaranteed Income Opportunities
In the event that Social Security does cave in, retirees would need guaranteed income sources to cushion the blow. Annuities can play a big role in this area. You fund them while you’re still working and watch your contributions grow over time. When you retire, the annuity generates predictable and consistent income, paid out monthly, quarterly, or annually, providing a steady stream of income. Certain types of annuities are also completely immune to market volatility and government actions.
Diversify Your Retirement Funds
Annuities are also excellent tools for diversifying your portfolio, a strategy that financial analysts regularly recommend to mitigate risk. By taking on a broad range of asset types and different commodities, you can build a retirement plan that isn’t totally dependent on Social Security.
Don’t Panic, Plan
There’s no denying the seriousness of these developments, but the good news is that there’s still time to fortify your retirement plans. While it’s easy to feel overwhelmed, panic can often make matters worse. Instead, taking action now can help you better prepare for what lies ahead.
Yes, $138,000 is a lot to lose at any stage in life. But you’re not alone, and you have options. It may take a little creativity and dedication, but the more you can work on your retirement plan now, the less crushing the blow can be.
Fortify Your Retirement Plan With Scottsdale Wealth Advisory
At Scottsdale Wealth Advisory, setting our clients up for a successful retirement with guaranteed income is what drives us every day. If you’re planning for your retirement future and these developments concern you, please contact us, and we’ll tailor a plan to your needs.
To schedule your complimentary financial coaching session, call (480) 247-9090, email info@SWAFirm.com, or book directly at calendly.com/BrentMatthew.
FAQ
How can I quickly assess if my retirement plan is at risk due to potential Social Security cuts?
A good first step is to evaluate how much of your retirement income is dependent on Social Security benefits. If it makes up a significant portion of your income, consider diversifying your sources of retirement income. Reviewing your retirement savings, investment strategy, and guaranteed income options, such as annuities, can help ensure you’re prepared for potential changes.
What types of annuities should I consider to protect my retirement income?
Fixed annuities and immediate income annuities are two popular options that provide guaranteed income, regardless of market fluctuations or changes to Social Security. These types of annuities can offer a stable income stream that complements your other retirement savings. It’s important to speak with a financial advisor to choose the right annuity for your specific goals and financial situation.
Is it too late to start taking steps to strengthen my retirement plan?
It’s never too late to start saving for retirement. While the earlier you begin, the more time you have to adjust your strategy, even if you’re closer to retirement, you can still take proactive steps, such as increasing contributions to your retirement accounts, adjusting your investment portfolio, and exploring guaranteed income options like annuities. The key is to take action now rather than waiting for uncertainty to impact your future.
About Brent
Brent Matthew is the founder and CEO of Scottsdale Wealth Advisory, a full-service fiduciary retirement planning firm serving pre-retirees and retirees across Arizona and multiple states. With a strong commitment to always putting clients first, Brent leads the firm in developing comprehensive, tax-efficient financial plans tailored to each family’s unique goals. He is responsible for researching investment, annuity, and life insurance strategies and building smart asset allocations that reflect both long-term growth and risk management.
Brent is driven by a core belief: “The success of this firm will be measured by the success of the families it represents.” That client-first approach has guided his work since the beginning. He is currently enrolled at the College for Financial Planning and is on track to earn his CERTIFIED FINANCIAL PLANNER® designation. He also holds his Series 65 license and Arizona Life and Health Insurance Producers License.Outside the office, Brent embraces the Arizona outdoors with “lil B” and their two pomskies, Heimo and Kota. Whether he’s hiking, fishing, dirt biking, skiing, golfing, kayaking, or skeet shooting, Brent finds balance and joy in staying active. He’s also a fan of CrossFit, brunching, and cruising the Phoenix canal system on his beach cruiser—usually with classic tunes from the Marshall Tucker Band, Gordon Lightfoot, or Crosby, Stills & Nash playing in the background. To learn more about Brent, connect with him on LinkedIn.
