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Here’s how Social Security’s looming shortfall can affect your retirement plans

Here’s how Social Security’s looming shortfall can affect your retirement plans

A new report from the Social Security Administration showing benefits could be reduced faster than expected could trigger alarm bells – especially among those planning to retire within the next decade.

Social Security’s surplus reserves are expected to run out in 2033, a year earlier than previously estimated, according to the managers of Social Security and Medicare trust funds. This means that the entitlement program will only be able to pay out 76% of the planned benefits at that time if nothing is done to increase the fund.

“People who want to retire in their early 50s or for the next 10 or 15 years can probably expect less than 80% of that benefit,” Kristen Carlisle, general manager of Betterment for Business, told Yahoo Money.

The economic downturn caused by the pandemic changed the social security financing outlook. Employment, earnings, interest rates and GDP fell sharply last year and will gradually recover over the next two years. The pandemic also increased mortality, lowered the birth rate and reduced, all of which affected the deficit forecasts, the report said.

Social Security’s surplus reserves are expected to run out in 2033, a year earlier than previously estimated, according to the managers of Social Security and Medicare trust funds. (Photo: Getty)

It only aggravated the already narrowed agency.

“Social security has paid off more than they have taken,” Scott Thoma, retired strategist at Edward Jones, told Yahoo Money. “At some point, there will be no reserves left for them to deduct.”

Thoma said the government can adopt the same levers it drew four decades ago, as well as increase the age of social security entitlement and payroll taxes, but it is a matter of priority and the country’s other pressing problems.

“There are a lot of things 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 problem from 2033 versus a problem from 2021.

Assess your retirement savings

Financial experts are calling for a stress test for retiree plans for more results on health, employment and living costs, and when to apply for social security benefits, which should be treated as a supplement to savings.  (Photo: Getty)

Financial experts are calling for a stress test for retiree plans for more results on health, employment and living costs, and when to apply for social security benefits, which should be treated as a supplement to savings. (Photo: Getty)

Americans should include the potential reduction in their retirement plans. Financial experts are calling for a stress test for retiree plans for more results on health, employment and living costs, and when to apply for social security benefits, which should be treated as a supplement to savings.

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

Considering the average individual social security benefit is around $ 1,500 monthly – or $ 18,500 annually – the average per Year equals $ 14,060 after the 24% benefit reduction. That’s a loss of nearly $ 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 the different filing ages and then reduce them by a quarter, Thoma suggested. That number is what you can expect per month.

If that’s not enough — in addition to your own savings — savers over 50 can contribute more than the annual maximum to their retirement accounts, known as fundraising contributions. Younger savers should regularly contribute as much as possible to employer-sponsored plans or IRAs or Roth IRAs that can be created independently.

“You want to make sure you take advantage of retirement as it exists before you turn 50,” she said.

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Yahoo Money sister site Cashay has a weekly newsletter.

Stephanie is a reporter for Yahoo Money and Dinner, a new personal finance site. Follow her on Twitter @SJAsymkos.

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