A new law adds to Social Security's benefit costs at a time the program's funding is already running low

Worried about Social Security's future? Here's what experts say to consider before claiming benefits Here's what that means for retirement planning

A new law adds to Social Security's benefit costs at a time the program's funding is already running low

When it comes to Social Security, prospective beneficiaries often worry whether their benefits will be there when they retire.

Polls show Americans generally have low confidence in the program's future.

A 2024 survey from Nationwide Retirement Institute found 72% of adults worry Social Security will run out of funding in their lifetime.

Likewise, an October Bankrate survey found that only 6% of Americans are "not at all concerned" their benefits won't be paid when they reach retirement age.Gen Xers — who at ages 44 to 59 are getting closer to retirement — are most likely to be concerned about the program's future, Bankrate found.

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President Joe Biden recently signed the Social Security Fairness Act, which will increase Social Security benefits for nearly 3 million individuals who also receive public pensions. Yet because that legislation did not provide for a way to fund those extra benefit payments, Social Security now has a shorter runway of time that it can afford to pay full benefits.

In 2024, Social Security's trustees projected the program's combined funds may last until 2035, at which point 83% of benefits would be payable. The newly enacted changes bring that date closer by six months, according to Congressional Budget Office estimates.

"There's no new sources of revenue here, and so by definition, depletion is going to happen sooner versus later," said David Blanchett, head of retirement research at PGIM DC Solutions.

To address the program's shortfall, Congress may raise taxes, cut benefits or a combination of both.  

Those looming changes may influence claiming decisions — for all beneficiaries, as well as those affected by the new legislation.

Now is the time to 'stress test' your plan

Social Security retirement benefits are based on a worker's earnings history, as well as the age at which they claim.

The earliest claiming age is 62. But claiming that early results in permanently reduced benefits.

By waiting until full retirement age — which ranges from 66 to 67, depending on date of birth — retirees will receive 100% of the benefits they've earned.

By delaying even longer — up to age 70 — they stand to receive an 8% benefit boost for every year they wait past full retirement age.

Even if there are benefit cuts in the future, experts say it generally helps to have a higher benefit amount, so long as you can afford to delay claiming benefits.

Individuals who are in or near retirement may not see imminent changes.

"It's incredibly unlikely that they're going to reduce benefits for any current retirees," Blanchett said.

However, for future beneficiaries, Social Security probably won't be as generous in 20 or 30 years as it is today, Blanchett said. Exactly how benefits may change will depend on a variety of unknowns, including future immigration and birth rates.

That doesn't mean Social Security benefits won't exist at all, Blanchett said. But he said it would be wise to assess how receiving just 80% of today's benefits, or even 50% of the current value for dual-income households, affects your retirement plan.

Social Security is meant to be just one part of a retirement income plan. If Social Security cuts happen, it helps to have more retirement savings or other assets to rely on.  

"The one thing that you can do to kind of help yourself with all these risks and uncertainties is just to save more so that you're prepared for whatever may happen," Blanchett said.

Joe Elsasser, a certified financial planner and president of Covisum, a Social Security claiming software company, said he recommends a "stress test" for retirement plans in light of the possibility of benefit cuts.

"If you can't live how you want to live even in the presence of a cut, consider reducing spending a bit now so that you don't have to reduce it a lot more later," he said.

If new law affects you, 'take a fresh look' at your plan

More than 72.5 million people now receive Social Security and Supplemental Security Income benefits, according to agency data.

Consequently, the nearly 3 million people who stand to benefit from the newly enacted Social Security Fairness Act are just a fraction of the beneficiary population.

The new law eliminates certain provisions — the Windfall Elimination Provision, or WEP, and the Government Pension Offset, or GPO — that reduced Social Security benefits for workers who had pensions or disability benefits from work where Social Security payroll taxes were not paid.

Because those changes have implications for an entire family, the new law may reach double the number of individuals who are directly affected by the changes, after accounting for spouses and children, according to David Freitag, a financial planning consultant and Social Security expert at MassMutual.

The potential difference in benefits may be dramatic. For example, one couple who would have faced a retirement funding shortfall when they had been affected by the WEP and GPO may now have a lifetime surplus of more than $300,000 once those offsets are eliminated, according to MassMutual's computer models.

The effects of the new changes will vary on a case-by-case basis, and not all beneficiaries stand to see that level of increase. But even just $300 more in monthly income that's annually adjusted for inflation can make a big difference in retirement, Freitag said.

"If you're affected by this, you need to take a fresh look at your retirement plan," Freitag said.

This story originally appeared on: CNBC - Author:Lorie Konish