If Social Security benefits run dry in 2033, workers need an extra $100,000 in retirement savings

The new deadline is about nine months earlier than trustees were predicting a year ago, primarily caused by the Social Security Fairness Act, a new law that was passed earlier this year that increased benefits for nearly 3 million former public-sector workers who had pensions for jobs not covered by Social Security. Most of these beneficiaries began receiving their new monthly benefit amount in April, according to the SSA.

The new bill boosts Social Security retirement payments for former police officers, firefighters and teachers, which critics warned will further weaken the program’s finances.

The new law eliminated the Windfall Elimination Provision, which reduced the Social Security benefits of workers who receive government pensions not covered by Social Security. It also repealed the Government Pension Offset, which reduced benefits for spouses, widows and widowers whose spouses receive public sector pensions.

The Social Security Trustees Report urged lawmakers to “quickly enact legislation to make the necessary adjustments.” Unless Congress acts, says PensionBee, Americans could need an extra $100,000 in retirement savings to make up the shortfall, posing a significant financial challenge for millions.

The anticipated result is an across-the-board reduction of 17% in monthly benefits. For the average retiree, receiving $1,980 monthly, a 17% cut translates to losing $336 per month, or $4,039 per year.
To maintain some income in retirement, workers would need to save an additional $100,980, based on the 4% rule – a figure that surpasses the current median retirement account balance of $87,000.

According to the 4% rule, which captures the ratio between annual withdrawals and total retirement savings, retirees can take 4% out of their accounts each year, regardless of size, and leave enough behind to sustain them for the duration of their retirement.

“The longer you have to prepare, the more manageable the impact of potential cuts – and the less you need to contribute in total,” said Romi Savova, CEO of PensionBee. “Younger savers may only need to contribute a few dollars a week, while older workers face a much steeper challenge.”

For example, while a 25-year-old, using the assumptions set out above, would need to put away only $59 a month, a 55-year-old would need to save nearly 9x as much a month to offset the same benefit.

Worse, with less time in the market, the average 55-year-old would need to contribute $73,896, while a 25-year-old would need to find just an additional $29,736 over their longer saving timeline.

Today, nearly half of American households (46%) have no retirement savings, according to PensionBee. Among those aged 55-64, the median balance is just $104,000, or roughly the amount needed to offset the anticipated cuts to Social Security.

“Social Security is the backbone of retirement income for most Americans,” said Savova. “These figures highlight a stark reality: retirement is a personal responsibility, and the safety net is getting thinner.”

While Americans remain divided on specific solutions, recent AARP data reveals that 85% of respondents support maintaining or increasing benefits even if it means higher taxes, with backing across party lines: 75% of Republicans, 90% of Democrats, and 80% of independents prefer revenue increases over benefit cuts.