Suze Orman warns Social Security is in trouble — here’s what you can do ‘right here and right now’ to secure your retirement
Americans who are planning to retire soon may need a different financial plan.
While retirees are seeing the biggest Social Security cost-of-living adjustment (COLA) since 1981 this year, experts have concerns the boost could potentially hasten the program’s insolvency date.
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The main fund that supports Social Security is projected to run low by 2034, according to the latest trustees report — but it could drain even faster now thanks to the higher benefit payments.
“Social Security’s in trouble; we are in trouble. And the only people that are going to save us, is us,” financial expert and podcast host Suze Orman told MoneyWise in a recent interview.
Orman says that even though the U.S. economy and Social Security are facing some challenges, there are still ways to make things work and ensure your golden years.
Social security is expected to be at its lowest point by 2034
Due to the dramatic drop in birth rates over recent decades, the Social Security Old-Age and Survivors Insurance Trust Fund is slowly drying up. There is less tax revenue available to support the fund because there are fewer people.
High unemployment during an economic downturn could also “cause a significant worsening in the finances of the Social Security Trust Fund,” Mary Johnson told MoneyWise in October. Johnson is The Senior Citizens League’s Social Security and Medicare Policy Analyst.
Once the fund’s reserves are exhausted, you’ll only receive about 77% of your expected benefits unless Congress steps in.
The government could increase revenue from taxpayers to make up the shortfall, as one option. Center on Budget and Policy Priorities.
Orman suggests that the government may consider raising the minimum age you can get your full Social Security benefits. This age is currently either 66 or67 depending on your date of birth.
Impact of inflation on savings
Meanwhile, inflation is still rampant and putting a dent in people’s retirement funds.
In fact, Americans say they’ll need $1.25 million in savings to comfortably retire, which is 20% more than they thought they’d need last year. The average age of their retirement savings has dropped 11% between 2021 and now.
“[The government is] seeing savings account levels go down, seeing debt go up, seeing retirement accounts being withdrawn from — and seeing the potential of a problem down the road,” says Orman.
Orman worries the current economic conditions are setting the country up to become a “welfare state.”
“Is the government going to have to take care of most of the people? Because they won’t have any money. So how do they solve that problem right now, before it goes in that direction?”
Credit card debt is surging at its fastest year-over-year rate in over 20 years, and it’s becoming even more expensive to borrow with recent rate hikes.
Despite this year’s COLA being the biggest in four decades, it still may not be enough to counter rapidly rising prices. Johnson estimates that the average senior benefit was 50% less than the 5.9% COLA received in January.
“I would say while this is currently a chronic problem every year, yes, indications are that the COLA will not reflect pockets of persistently high inflation affecting retired and disabled Social Security recipients. That puts tens of millions of retirees at risk of continuing to fall behind,” Johnson wrote in a September press release.
She added in an October brief that if the economy turns to deflation next year, there’s also a possibility there will be no COLA payable in 2024.
Planning for retirement
Inflation has cooled to 6.5%, but it is still keeping the cost of goods and services uncomfortably high for many Americans — but Orman warns not to tap into your retirement account or investments to deal with the expenses.
“That is for when you retire. The average person is living longer now. So that retirement account has to be bigger.”
She believes it is important to have an emergency savings account Instead, use it as a cushion for unexpected expenses. Most experts generally advise that you set aside three to six months’ worth of living expenses.
Even after you retire, it’s crucial to have substantial savings in place. Experts told CNBC A retiree should have at least one to three years’ worth of expenses depending on their monthly income.
Johnson pointed out in September that more than half of older households don’t have any savings and rely solely on Social Security benefits.
She says it’s also important to budget for your medical care — although Medicare premiums will drop just over $5 a month to $164.90 in 2023.
Consider your medical coverage, out-of-pocket limits, and decide how much savings you need for a worst-case scenario.
In a podcast episode from March, Orman echos the sentiment. For those who are retired, you need to cut expenses now and not wait.
WATCH NOW Full Q&A with Suze Orman and Devin Miller of SecureSave
You might consider calling an expert
According to data by the Federal Reserve Board, only 40% of non-retirees feel confident about their retirement savings — clearly many Americans could use help navigating their finances and making sure their assets are protected.
Working with a financial adviser can be a smart move, and it’s better to get started sooner rather than later. Although it can be tedious to call and research multiple financial advisors, there are several online services that make this easy. match you with a pre-screened financial adviser Who will address your specific needs.
You can get started for free by answering a few questions about yourself and your finances — and in just a few minutes you can set up a no-obligation call with a qualified adviser to explore your options.
This article is for informational purposes only. It should not be considered as advice. It is not a warranty.