Retirement, Investments, & Insurance for Individuals Build your knowledge How will Social Security’s future affect your retirement planning?
How will Social Security’s future affect your retirement planning?

Change is coming for this program, whether we’re prepared or not. How will America’s pocketbooks and savings habits adjust?

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6 min read |

Quick takeaways

  • The future underfunding of Social Security isn’t a new problem. Seven years ago, a Congressional commission identified issues and possible solutions. But collaborative planning remains elusive.
  • The economic impact of changes to Social Security isn’t just about reduced benefits. Will those who can work continue to do so for longer? Will those who can’t work longer face extreme financial need? The impact has real consequences for current and future retirees.

Sometimes legislation gets debated and passed (or not) with little fanfare. Take the estate tax: Reform enacted in 2017 impacted just 1,900 taxable returns, or less than 0.1% of the estates of people who die each year.1 A proposed 2023 capital gains tax bill would have consequences for those who make more than $3.8 million—a whopping 1% of Americans. 2

But the endless, unresolved debates about the future of Social Security matter quite a lot to you, your loved ones, and the well-being of the nation. Currently, 70 million Americans receive benefits each year from the nearly century-old program. 3 The time to fix what ails it gets more urgent every day. Whatever legislators do—or don’t do—may shift how you save for and experience retirement, and potentially the overall health of the economy, too.

The evolution of support for people in old age

The idea of providing some sort of income in old age or due to challenging circumstances didn’t originate with Social Security. Elderly members of fraternal organizations and Civil War veterans and widows are two examples of groups who received financial support in the 1800s and early 1900s. In fact, in 1935, the year Social Security was enacted, 30 states already had some form of an old-age pension, albeit programs that were mostly exclusionary and less than adequate: Only about 3% of seniors received a benefit, averaging about 65 cents a day. 4

Chart showing social security beneficiaries by age, 2022.

Chart showing social security beneficiaries by type of benefit, 2022.

Data: Social Security Administration

At its inception in the depths of the Great Depression, Social Security was no different: It’s always been defined by who gets it (and who does not) and how much they get. In 1935, the have nots included farm and domestic workers; self-employed doctors, lawyers, and ministers; and employees of federal, state, and local governments and non-profits. 5 Today, Social Security is much more inclusive than it is exclusive: 97% of older adults have or will receive benefits.6

Possibly less Social Security and a longer retirement

Which brings us to 2023 and who wants to or needs to receive Social Security.

A significant portion of the population hasn’t been able to supplement expected Social Security benefits with retirement savings. About 27% of people age 59 and older haven’t saved anything for retirement. 7 Crucially, for 4 in 10 adults age 65 and older, Social Security keeps them above the poverty line. 8

“Those are staggering statistics, and remind all of us that for many Americans, retirement may be elusive,” says Heather Winston, financial professional and product director for Retirement and Income Solutions at Principal® . “That elusiveness will bring other issues to the forefront, including healthcare costs, broader financial wellness benefits, and more.”

As life expectancy increases, so do retirement lengths—so more people are going to need more money for a longer time. While simply working until later in the life is one solution, the ability to do that in large part depends on your employment status and health in your 50s: About 35% of people are not regularly employed by that age and of those, 60% will never find another job.9

Finally—this is important—the number of people nearing or already claiming Social Security is at a historic level. In 2024, more Americans will turn age 65 than at any other point in history, an inflection some researchers refer to as Peak 65.10

The United States, of course, isn’t alone in the conundrums of an increasing population of older people. France, for one, has been roiled by protests simply because the government wants to increase the retirement age from 62 to 64. Cultural norms, such as multiple-generation households, have helped other countries manage the care needed by society’s oldest members.11

Your wallet: Many older people at retirement age are continuing to work, even part time. If this is an option, consider using extra earnings for catch-up contributions to make up deficits in your retirement savings deficits.

What’s really happening to Social Security

All those data points run squarely into the news that Social Security will not be paid at current benefit levels much past the year 2033.12 Does that mean Social Security will be here one day and gone the next—able to pay benefits (solvent), then, poof, unable to (insolvent)? No.

Social Security pays out what it takes in; for it to do that at current benefit levels, many more people need to be working—paying in—than drawing benefits. And because of Peak 65, that’s about to change. Soon there will not be enough people actively employed to pay the current level of benefits to those who are expected to or already are claiming them. Unlike the rest of the federal government, Social Security can’t borrow to fulfill those obligations. 13

This affects you in very real ways. First, if you’re counting on a certain amount from Social Security, don’t—unless Congress decides to act otherwise. Current estimates are that benefits would have to decrease by some 14% to enable Social Security to chug along for another 75 years or so.14

If future benefits are reduced, the impacts remain unknown. If you are able to, how much more will you need to save? Who will suffer the most because of reduced benefits, and at what cost? The hardest hit may be women, who currently receive about $400 less than men in Social Security benefits, as well as older people of color, whose poverty rate is roughly two times as high as it is for older white adults.15

“The challenge with very big problems like these is that there are so many ripples, and those seem infinite, not timebound and measurable,” Winston says. “So we should be thoughtful, and ask those in charge to be thoughtful, and also recognize the complexity of finding solutions that work for as many people as possible—not just those who have the loudest voices.”

There are a variety of legislative proposals swirling, including changing the age to claim Social Security and new funding mechanisms. But the time to do something is fast approaching, and the fractious legislative setup doesn’t bode well. 16

“It’s a question we as a society need to ask ourselves: Do we fundamentally believe we should be supporting people of a certain age and stage of their lives? Are we willing to collectively think of retirement as a transitory time of life where we align to working longer and in different ways? Should we move the full retirement age to 70 and increase penalties for earlier election?” Winston says. “Who is the big thinker and who has the big idea, the one that may not apply equally but does apply with equity?”

Your wallet: However much you’ve saved, you can create a plan for how you’re going to spend in retirement. This simple three-step plan can help.

What's next?

Because you know that Social Security benefits may change, can you make adjustments now to ensure you’re saving enough? Log in to to check your savings rate. Don’t have an employer-sponsored retirement account or want to save even more? We can help you set up your retirement savings with an individual retirement account (IRA). Ready to learn more ways you can build your financial foundation? Our learning library can help.