One of the most common questions we hear from clients, especially younger generations, is whether Social Security will still be available by the time they retire. It’s a valid concern. The system has evolved dramatically over the decades, and it continues to face new challenges today.
The original purpose of Social Security
Social Security was originally created in 1935, during the Great Depression, as a tax-free benefit meant to serve as a financial safety net. Its purpose was simple – to provide income for retirees, individuals with disabilities and families who had lost loved ones. It was never intended to replace your entire income in retirement. Instead, it was designed to provide a foundation of support once you stopped working or faced an unexpected life event.
Who benefits and how
Social Security provides critical support to millions of Americans each year. Retirees rely on it for monthly income, individuals with disabilities depend on it for stability and survivors, such as spouses and children, receive benefits when loved ones pass away.
It’s particularly valuable for lower-income workers, who receive a higher percentage of their preretirement income compared to higher earners. In that sense, Social Security remains one of the most important programs for promoting long-term financial security across generations.
Why people worry about its future
Concerns about Social Security’s solvency are understandable. The reality is that there are fewer workers paying into the system and more retirees drawing benefits than ever before.
Without adjustments, the trust fund that helps pay those benefits is projected to run out sometime in the mid-2030s.
That doesn’t mean the program will vanish, but it does mean that, if nothing changes, future retirees could see smaller checks. Current payroll taxes would still fund most benefits, but not all of them.
The system has already changed and could again
Over time, lawmakers have made several adjustments to extend Social Security’s longevity. Originally, benefits were completely tax-free. Today, depending on your retirement income, up to 85% of your benefits can be taxed, and it’s not hard to imagine that number increasing in the future.
Looking ahead, several potential reforms are being discussed, including:
- Raising the full retirement age;
- Adjusting benefit formulas for higher earners;
- Increasing the amount of income subject to payroll taxes.
None of these changes are simple, but they could help strengthen the system for future generations.
A look back – lessons from the 1980s’ reforms
It’s worth remembering that this isn’t the first time Social Security has needed an overhaul.
In the early 1980s, the program was facing a similar financial shortfall. In response, President Ronald Reagan and a bipartisan Congress passed a series of reforms that included gradually raising the full retirement age, taxing a portion of benefits for higher earners and increasing payroll taxes.
Those changes were significant, yet their effect unfolded slowly and smoothly over decades. Indeed, no one has fully retired under those adjusted age rules yet. This stands as a good reminder that even if new changes are made in the coming years, they’re unlikely to cause sudden or severe adjustments for current retirees or those nearing retirement.
Can millennials and Gen Z rely on Social Security?
While Social Security is unlikely to disappear, it may look different by the time younger generations retire. That’s why it’s essential to view it as one piece of your overall retirement plan, not the entire strategy.
We often describe retirement income as a three-legged stool:
- Social Security;
- Employer-sponsored plans like a 401(k);
- Personal savings and investments.
All three legs are important. Relying too heavily on any single one, especially Social Security, can make your plan less stable over time.
What can be done and how to prepare
Even with uncertainty around Social Security, there are ways to plan confidently. Our role as financial planners is to help clients:
- Build diversified retirement income sources;
- Strategically integrate Social Security into their broader plans;
- Plan for tax efficiency and timing around benefit claims;
- Prepare for both the strengths and the uncertainties of the system.
We also support changes that would strengthen the program such as protecting lower-income benefits, simplifying claiming rules and improving long-term funding.
The bottom line
Social Security isn’t going away tomorrow. It’s evolving. The best way to prepare is to stay informed, save with intention and develop a plan that adapts as the system changes.
At SKG, we help clients design retirement strategies that include Social Security without depending on it entirely. If you’d like to discuss how to build a more resilient retirement plan for your future, reach out to a member of the SKG Team today.
Chris Kampitsis and Ben Soccodato head The SKG Team at Barnum Financial in Elmsford.
