For many, the reliability of Social Security as a steady income source in retirement is a topic of concern, especially given its current underfunding by about 22%. This concern is particularly poignant for those of us who are decades away from retirement.
In 2023, retirees will see an 8.7% increase in their Social Security benefits due to rising inflation, following a 5.9% increase in 2022. This adjustment will boost the average monthly benefit by $146 to $1,827. Meanwhile, the maximum benefit will rise to $4,555 per month. To put these numbers into perspective, the average annual benefit of $21,924 is equivalent to having about $548,100 in savings, assuming a 4% return.
Despite these increases, there’s a concern about the financial sustainability of Social Security. The Social Security Board of Trustees has projected that the fund could be depleted by 2034, at which point only about 78% of promised benefits would be payable.
In 2023, FICA taxes will remain the same, but the maximum taxable earnings will increase to $160,200. It’s worth noting that the increase in FICA taxable income is significantly less than the COLA increases, suggesting a potential need for adjustments in tax rates to sustain the Social Security fund.
Looking ahead to 2024, the cost-of-living adjustment will be lower at 3.2%, reflecting a decrease in inflation from its peak in mid-2022. This adjustment affects over 66 million Social Security beneficiaries and approximately 7.5 million Supplemental Security Income recipients.
It’s important to remember that while Social Security can be a significant part of retirement planning, it’s wise not to rely solely on it. With uncertainties looming over its future funding and sustainability, individuals should consider other retirement savings plans and investment strategies to ensure financial stability in their later years.
Understanding these dynamics and preparing accordingly can help mitigate the impact of any potential shortfalls in expected Social Security benefits.
