Don’t count on full Social Security benefits, financial planner warns

Americans approaching retirement should prepare for the possibility of reduced Social Security benefits by reassessing their savings, spending and plans for claiming benefits, according to a recent analysis published by the Center for Retirement Research at Boston College.

Luke Delorme, a certified financial planner and director of financial planning at Tableaux Wealth in Great Barrington, Massachusetts, recommends that workers test whether their retirement plans could withstand a significant reduction in benefits rather than assume they will receive the full amounts currently projected.

“It would be prudent to treat Social Security benefits as a variable number and to develop a financial plan that is sturdy enough to hold up even if that number comes in low,” Delorme wrote. “Consider building a baseline plan that lowers your projected benefit by 20% and see whether it is still viable. If your plan can absorb the risk, great. But if it can’t, consider working a bit longer, delaying when you claim benefits, or saving a little more.

“These strategies will be necessary regardless of what Congress does, because resolving the Social Security shortfall in the end will still include reduced benefits and/or increased tax revenues that could affect you.”

The Social Security retirement trust fund is projected to be depleted in 2032, a year earlier than estimated in the previous projection, according to the program’s 2026 trustees report. At that point, incoming revenue would cover 78% of scheduled benefits.

Social Security benefits will rise 3.6% in January 2027, averaging $75 more per month, the Social Security Administration announced last week. This affects 76 million Americans, including Supplemental Security Income recipients.

Advocates say the cost-of-living adjustment falls short as inflation outpaces payment increases.

Congress could address the shortfall through measures such as increasing the amount of earnings subject to Social Security payroll taxes, raising the retirement age or reducing benefits for higher-income recipients. Delorme said.

He added that people already receiving benefits may be less exposed to potential cuts than younger workers, although the outcome of future congressional action remains uncertain. Those who have not yet retired should consider preparing for the possibility of lower payments.

Potential responses include saving more, working additional years or delaying the start of Social Security benefits. Waiting until age 67 rather than claiming at 62 increases monthly benefits by more than 40%, according to Delorme.

Another option for retirees seeking a predictable income stream is purchasing an annuity, although Delorme said he does not typically use such products in his practice.

The goal, Delorme wrote, is not to predict precisely what Congress will do but to prepare for a range of outcomes before a shortfall threatens a household’s retirement security.

This article was generated using HousingWire Automation and reviewed by a HousingWire editor before publication.