What will the average Social Security check look like in 2040?
With the future of Social Security uncertain, people who are 10 to 15 years away from retirement may be wondering what the average Social Security check will be in 2040. The answer to this is not simple and rather requires some understanding of the Social Security system. The same goes for systems and some math.
Why do I need to know the amount of my future benefit checks?
It’s easy to get an idea of what your future Social Security checks will be, but knowing 10 to 15 years from now is a difficult task. This is largely due to recent reports that SSA is underfunded.
SSA’s cash reserves will be depleted by 2034, according to the Social Security Board’s 2022 annual report. It is estimated that annual taxes will be enough to cover approximately 78% of the benefit for each year thereafter.
Therefore, SSA will likely cut benefits to balance out the remaining benefits. At this time, it is unclear whether SSA will resort to these cuts or whether Congress will find a way to fill SSA’s cash reserves. This uncertainty makes it difficult to determine the average Social Security check in 2040.
If Congress fails to reach an agreement on replenishing SSA reserves, benefits could be reduced by 24.9%, according to the 2022 annual report. That decline could make life difficult for many retired adults.
According to SSA, benefits account for at least half of income for 50% of married senior couples and 70% of single seniors. Because Social Security is so important, it’s important for people who expect to retire in the next 10 to 15 years to have an idea of the average Social Security check likely to be available in 2040.
Currently, the average monthly Social Security check is about $1,900. It is very difficult to accurately predict how the economy will fare in 15 years or what inflation will be. Still, we can make some educated guesses.
Assuming an inflation rate of 2.25%, the average benefit about 15 years from now will be $2,663. Adjusting this figure to the cost-of-living adjustment (COLA) of 2.6% over the past 20 years would result in an average benefit amount of about $2,800.
However, considering recent predictions that salaries will need to be reduced by 23% by 2034, the average salary will fall to around $2,200. These numbers are just averages and not everyone will benefit the same. That means some will get more than $2,200 and some will get less.
How to prepare
Now that you have an idea of what your average Social Security check will be in 2040, it’s important to start preparing for future cuts now. Use these tips to prepare for the future.
- If you’re planning to retire early, you can save more money from your paycheck for retirement.
- If you are planning to retire later (age 60 or above), it is a good idea to continue saving and growing your retirement corpus. Additionally, it is a good idea to create a comprehensive retirement financial plan, including adding other sources of income.
- You should try to make the most of your employer-based retirement accounts and receive matching employer contributions. By increasing your matching employer contribution, you can also reap the benefits of compound interest on these investments.
Steps to Balance SSA Reserves
SSA is not expected to run out of cash until 2034-35, but several measures to address the shortfall are already being discussed. If implemented, each of these measures will have different impacts on different types of taxpayers. These measures include:
Payroll tax rate increase
If SSA decides not to reduce benefits, one way to compensate for the shortfall would be to increase payroll tax rates. Currently, Social Security is funded by a 6.2% payroll tax and 6.2% paid by employers.
Tax increases are likely to be split evenly between employees and employers. It is also possible that more of the tax increase would be allocated to employers.
A legislative proposal from Rep. John Larson (D-Conn.) favors the second option. The proposal, called the Social Security 2100 Act, would increase the federal payroll tax rate by 6.2 percent for employers of employees earning more than $400,000.
Taxable Wage Increases
A plan to increase the taxable income limit is also being discussed to increase tax revenue. An increase in the wage limit will only affect taxpayers whose wages exceed their current contribution and benefit base.
For example, if your current contribution limit is $137,700 and your income is $170,000, you will pay Social Security taxes on the first $137,700 of your income. Now, with the limit raised to $200,000, you’ll have to pay taxes on all your income.
Raising full retirement age
Raising taxes has never been a popular measure, so it’s likely lawmakers will raise the Social Security retirement age. This means people work longer before they start receiving benefits.
There is a proposal to increase the retirement age to 69. Increasing the retirement age will have a greater impact on low-income people.
COLA adjustment reduction
SSA adjusts Social Security checks each year to account for inflation. This adjustment, called COLA, was 8.7% in 2023, 5.9% in 2021, and 2.8% in both 2018 and 2019. SSA will likely change its COLA formula to increase cash reserves. If this happens, your benefits may not keep pace with inflation.
