Hard Rowing Ahead? The Future of Social Security & Your Retirement

Unless changes are made in the near future, the U.S. Social Security system may become underfunded, leaving future retiree benefits in doubt. How should you prepare?

https://tickertapecdn.tdameritrade.com/assets/images/pages/md/Crew team: Social Security and retirement planning for investors.
3 min read
Photo by

Key Takeaways

  • The three foundations of retirement used to be pensions, Social Security, and personal savings
  • With pensions rare and Social Security not guaranteed, these outlets might not be as dependable
  • Saving early and making regular contributions can help jump start your retirement planning

Retirement funding used to be like a “three-legged stool," with employee pensions, Social Security, and personal savings all supporting the retiree. Today, that stool doesn’t seem to stand up for many of today’s investors.

Few private companies offer pension plans, and the future of Social Security benefits look a bit wobbly. That means you might need additional sources of retirement income to make up the difference, and depending on your financial situation, you might need to rely more heavily on some sources than others. 

Income Sources Rowing Together Toward Retirement

Picture a crew (rowing) team—eight people working together toward a common goal—the finish line. If one or two of the rowers aren’t pulling their weight, or are out of sync with the rest, the boat will still move toward the finish line, but not as effectively. To achieve the desired result, the other members will need to work harder. 

That’s how you might think about retirement income. What if Social Security future benefits are diminished from their current level? Other sources, such as 401(k) plans, IRAs, annuities, personal savings, and maybe even the equity in your home will need to provide a greater share.

For illustrative purposes only.

The important thing is to create a plan, stick to it, and start saving.

"The main message is to save what you can because you’re mostly going to be creating your own paycheck in retirement," said Dara Luber, senior manager, retirement at TD Ameritrade. “The important thing is to create a plan, stick to it, and start saving."

If you’re working today and aren’t retiring in the next few years, it’s an unpleasant truth that Social Security changes could affect your post-work life. Looking at the future of Social Security, the system is headed for insolvency in 2034, according to the government’s 2018 Social Security trustees report. Starting in 2034, the report said, Social Security will only be able to pay out 79% in promised benefits to retirees and disabled beneficiaries.

Social Security’s cost now exceeds the amount of taxes being paid into the system, a 2018 benefit deficit the government expects to worsen in coming years “primarily because the retirement of the baby-boom generation will increase the number of beneficiaries much faster than the number of covered workers increases, as subsequent lower-birth-rate generations replace the baby-boom generation at working ages," the trustees’ report explains.

Current Social Security taxes pay current year benefits. For almost all years before 2018 more Social Security taxes were taken in than were needed to pay benefits. That surplus could have been invested and held in trust like defined benefit pension plans are, but instead much of the surplus was used to cover other government spending. The government does credit the “surplus" with a minimal amount of interest, but it’s not actually in a “trust account" where it could be managed for long term gain. Much like the current deficit spending of the U.S. Government, Social Security deficits could also be financed via borrowing. Or other tax receipts could be used to pay Social Security benefits.

Social Security Fixes: Like Losing an Oar?

Some of the solutions the Social Security report proposes include raising revenues now through a payroll tax increase (which means more money could be deducted from your paycheck), a 23% reduction in benefits starting in 2034, a benefit cut of 21% for people who become eligible in 2018 or later, or some combination of those approaches. 

Other proposals regarding the future of Social Security, that have been proposed over the years include:

  1. Raise the full retirement age. One proposal suggests raising the full retirement age to 68, from its current 66 or 67 (depending on when you were born).
  2. Increase or eliminate the payroll tax cap. The Social Security payroll tax is applied to annual earnings of up to $128,400 in 2018; wages above that go untaxed. Some proposals suggest increasing the tax cap or taking it away completely.
  3. Reduce benefits for higher earners. The jury is out on whether policymakers will act to address the shortfalls forecast to hit in the mid-2030s.

For more information, see the Social Security report.

Rowing More Efficiently

Social Security funds are expected to be intact for the duration of the baby boomers’ retirement, but might start running lower just about in time for the “Generation X" retirees 15 to 20 years from now. “It’s hard to say if full Social Security benefits will still be there," Luber said.

One way to partially help cover yourself from any lack of Social Security benefits is to consider aggressively funding your company 401(k) plans and IRAs.

"Many companies have started to auto-enroll employees at 3% of their pay in 401(k) plans, but you could argue 3% isn’t enough," Luber said, adding that it’s important to immediately put aside as much as possible from each paycheck to potentially benefit from the advantage of compounded returns.

At this point, a lot of people—particularly those just starting out—might hear talk about “saving more money" and feel like throwing their hands up as they watch the traditional three-legged stool fall apart. After all, many are already deep in debt with college loans, and some have elderly parents to take care of and perhaps their own children’s college savings to build. If you’re in this situation, how can you put aside more for your own retirement?

"I’m not saying to give up your daily vanilla latte, but look at things you spend your money on," Luber said. “Consider the things that make you least happy, and find a way to cut back or do it cheaper. It can cost $80 to take your family to a first-run movie at the theater when you include tickets and food, for instance. If you love movies, rent a movie at home and make popcorn. Maybe you don’t see first-run movies, but you can save $75."

Or by packing lunch each day instead of buying, someone could potentially save more than $2,000 a year, Luber added, enough to fund half of an IRA contribution.

Plotting Your Course to the Finish Line

The important thing is to start and be consistent. This holds true regardless of the future of Social Security. Even small contributions made each month can grow, and you can increase your contributions as your financial situation changes throughout your life. Saving early and making regular contributions can give you a head start on planning for retirement, which may allow you to reach your financial goals sooner. 

Ready to start rounding out your crew team? Here are some retirement planning tools and resources to help you get started or check if you’re on track. 


Key Takeaways

  • The three foundations of retirement used to be pensions, Social Security, and personal savings
  • With pensions rare and Social Security not guaranteed, these outlets might not be as dependable
  • Saving early and making regular contributions can help jump start your retirement planning
Call Us

Do Not Sell or Share My Personal Information

Content intended for educational/informational purposes only. Not investment advice, or a recommendation of any security, strategy, or account type.

Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.

All investments involve risk, including loss of principal. Past performance does not guarantee future results. There is no assurance that the investment process will consistently lead to successful investing.

Maximum contribution limits cannot be exceeded. Contribution limits provided are based on federal law as stated in the Internal Revenue Code. Applicable state law may be different. TD Ameritrade does not provide legal or tax advice. Please consult your legal or tax advisor before contributing to your IRA.


Market volatility, volume, and system availability may delay account access and trade executions.

Past performance of a security or strategy does not guarantee future results or success.

Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.

Supporting documentation for any claims, comparisons, statistics, or other technical data will be supplied upon request.

This is not an offer or solicitation in any jurisdiction where we are not authorized to do business or where such offer or solicitation would be contrary to the local laws and regulations of that jurisdiction, including, but not limited to persons residing in Australia, Canada, Hong Kong, Japan, Saudi Arabia, Singapore, UK, and the countries of the European Union.

TD Ameritrade, Inc., member FINRA/SIPC, a subsidiary of The Charles Schwab Corporation. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. © 2023 Charles Schwab & Co. Inc. All rights reserved.

Scroll to Top