Participants may need thousands of dollars to recuperate the anticipated cuts to Social Security benefits in 10 years.
A new analysis by PensionBee finds that Americans could need an additional $100,000 to make up the expected 17% cut to their Social Security benefits in 2035, unless Congress were to take action between now and then.
While the average retiree today makes $1,980 monthly, according to Kiplinger, a 17% cut converts to a loss of $336 per month, or $4,039 per year.
“Social Security is the backbone of retirement income for most Americans,” said Romi Savova, CEO of PensionBee. “These figures highlight a stark reality: retirement is a personal responsibility, and the safety net is getting thinner.”
The impacts of Social Security’s potential insolvency within the next decade are ominous to the retirement longevity for millions of participants. A 2024 whitepaper by HealthView Services that analyzed Congress’ proposals on Social Security insolvency found that if benefits are reduced by 21%, a mass affluent couple who are 25 years out of retirement could risk losing $908,000 in future benefits.
Further threatening their retirement savings, nearly half of American households (46%) have nothing allocated to their long-term future, according to a 2022 Survey of Consumer Finances by the Congressional Research Service. Those ages 55 to 64 have a total median account balance of $104,000, or the extra amount needed to offset cuts.
PensionBee conducted their analysis based on the 4% rule, which justifies that retirees can withdraw 4% out of their accounts each year to sustain their retirement longevity. The study also concluded this finding by assuming that each participant retires at age 67, withdraws 4% of their retirement savings each year and generates a 5% rate of return—without inflation— on their investments.
PensionBee’s analysis also varied among several age groups. For example, a 25-year-old who assumes these points would only need to save an additional $59 a month to offset future cuts, yet a 55-year-old near-retiree would need to save an extra $513 each month.
Overtime, a 55-year-old participant would have to allocate an additional $73,896 to their savings while a 25-year-old would require a bonus of $29,736.
“The longer you have to prepare, the more manageable the impact of potential cuts – and the less you need to contribute in total,” added Savova. “Younger savers may only need to contribute a few dollars a week, while older workers face a much steeper challenge.”
SEE ALSO:
Growing Number of Adults Urge Congress to Address Social Security Insolvency
Social Security Insolvency Could Result in $900K Benefits Loss
Americans Count on Congress to Fix Social Security Insolvency
Amanda Umpierrez is the Managing Editor of 401(k) Specialist magazine. She is a financial services reporter with nearly a decade of experience and a passion for telling stories and reporting news. She is originally from Queens, New York, but now resides in Denver, Colorado.