The Social Security Board of Trustees has said that Social Security will become insolvent in 2035. It also says that, if Social Security becomes insolvent, 80% of currently promised benefits will be able to be paid out of the payroll taxes that fund the system. This is a tad more optimistic that the 2021 report which projected insolvency in 2024 and that 76% of benefits would be paid after insolvency.
Social Security is one part of the tri-partite FERS retirement system, along with the FERS annuity and the Thrift Savings Plan. If one part of your retirement income stream might be negatively affected, it’s to your advantage to build up the other parts to compensate for the loss.
Now, I’m not saying that Social Security will actually go insolvent and pay only 80% of promised benefits. But, if steps are not taken soon, there are likely to be changes in the system that are not beneficial to retirees. The last time Social Security was “fixed” back in the Reagan administration, the changes adversely affected many future retirees.
Here are a few things we might expect even if legislative action is taken to beef up Social Security:
• People over a certain age (55 or so) will be grandfathered into the current version of Social Security.
• The full retirement age (now 66 or 67) will likely be raised.
• There may be “means testing” of the benefits of higher earning retirees.
• The “tax cap” ($147,000 in 2022) may be adjusted higher or may be eliminated altogether.
What can you do to adjust the other parts of your retirement to make up for a diminishment in the Social Security part?
• Set more aside in the TSP. There’s no such thing as too much money in the Thrift Savings Plan.
• Work a little longer. It’ll increase your FERS annuity, likely increase your Social Security, and give you more time to contribute to the TSP.
We’ll see what happens over the next several years, but one thing is certain – you have the ability to plan for future contingencies.