What Social Security's budget woes mean for your retirement benefits

Many retirees struggle with one big question when deciding when to claim Social Security benefits: Will the system be there for me in retirement?

News last week from the Social Security Administration potentially stoked those fears.

In an annual report, the Social Security Board of Trustees said the trust funds that help support the system will run out of money in 2034, in keeping with previous projections. If nothing changes, only 79 percent of an individual's benefit will be payable at that point.

The report also said that program's annual costs will exceed its income in 2018 for the first time since 1982. The program's reserves are expected to decline this year as a result.

The idea that Social Security would dip into its trust fund to pay for benefits comes as no surprise, said Christian Weller, professor of public policy at the University of Massachusetts at Boston and senior fellow at the Center for American Progress.

"That's what the trust funds are for," Weller said. "That was always their intention."

Experts say you should not let fear about the program's future affect your eventual claiming decision.

"You've worked your whole life to get this benefit and the fear of having it taken away or reduced before you claim it is very powerful," said Mark G. Smith, president of Vision Wealth Planning. "But you have to not let that emotion drive your decision making."

As it currently stands, Social Security would have to cut benefits for everyone in 2034.

"Politically, nobody thinks that that actually is going to happen," Weller said. "You want to see a revolution in this country, that would be one way of getting there."

To stop the funds from running out, Congress will have to act at some point before then. The changes will likely include some benefit reductions and tax increases, Weller said.

That could include pushing the full retirement age up, as Congress did in 1983. That change, which brought the age at which a retiree receives their full benefits to 67 from 65, has been gradually phased in.

It is unlikely that politicians would touch the initial eligibility age of 62 for retirement benefits, Weller said. "Raising the early retirement age doesn't do anything for Social Security," Weller said. "You're hurting people for no real apparent gain."

Congress could also elect to change the way benefits are adjusted for inflation every year, Weller said. Those increases are currently pinned to the Consumer Price Index for Urban Wage Earners and Clerical Workers.

The system's current funding status should not be cause for alarm for retirees and aspiring retirees, according to experts.

"If it all goes horribly wrong and no adjustments are made, we will get 75 to 80 cents on the dollar," said Anne Lester, head of retirement solutions at J.P. Morgan Asset Management. "That is not broken to me. That is a fender bender, that's not a crash."

Any modifications to Social Security would be unlikely to affect current and near retirees, according to Weller.

So if you are seven or eight years out from claiming at the earliest possible age, 62, your benefits will most likely stay untouched.

The greatest uncertainty, according to Weller, is for younger generations, especially those who will be 55 or younger in 2034.

The guidelines for deciding when to start receiving Social Security checks remain unchanged, regardless of the headlines, according to Smith.

Because putting in for retirement benefits at age 62 will reduce the size of your checks, it is best to wait until at least your full retirement age. That age is generally 66 or 67, depending upon the year in which you were born, and represents the time when you will receive your full retirement benefit. For every year you wait from full retirement age up to age 70, your benefit will increase by 8 percent.

"Make the best claiming decision based on what we know now, and don't make an early claiming decision for fear of the benefits running out at some point in the future," Smith said.

Individuals who are nowhere near age 62 should still be planning and saving for retirement.

And Social Security should still factor into those future income projections, Smith said, though those estimated benefits should be reduced by around 20 percent to 25 percent from where they are today.

"Showing a discount of the projected benefit is probably the most reasonable approach to take," Smith said.

While the terms of the benefits will probably change, it is unlikely that those checks will go away completely.

"It would be inappropriate to assume that younger folks are not going to get Social Security," Smith said.

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