Personal Finance

Worried about Social Security benefit cuts? Calculators can gauge how changes may affect you

Key Points
  • Social Security has a 13-year window for paying full benefits. At that point, benefits may be reduced unless Congress acts sooner.
  • If you want to know how benefit cuts would affect you, certain calculators can help.
  • While it's generally still wise to plan under current rules, stress-testing your plan can identify changes that may help if benefits are reduced, one expert said.
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Social Security is one of the biggest sources of income for many retirees.

Yet many people are unsure how much money the program may continue to provide.

A recent survey found 70% of consumers across all generations worry Social Security will run out in their lifetime, according to Nationwide Retirement Institute.

The annual Social Security trustees report projected a new depletion date of 2035 for the program's funds. Assuming Congress takes no action in the intervening years, at that time, 80% of benefits will be payable.

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To get an idea of how much your retirement benefits may be reduced, using a reputable Social Security calculator may help.

How to measure the effects of a benefit cut

Covisum, a provider of Social Security claiming software, recently updated its calculator to reflect the Social Security trustees' latest projections. Offerings include a free version for consumers and a more complex paid version for financial advisors.

Another product, Maximize My Social Security, lets consumers evaluate for a $40 annual fee which claiming strategy might best suit them. It also has a separate version for financial advisors.

The free Covisum calculator can help people do a quick calculation based on their benefits alone and some key facts — year of birth, full retirement age benefit amount, percentage of the benefit cut and the year that benefit cut occurs.

So someone turning their full retirement age this year, for example, can calculate the effect of a 23% reduction in benefits starting in 2034, as well as the effect of no benefit cut. For each scenario, the calculator will show the value of claiming either at age 65 or age 70, and when beneficiaries stand to get the maximum amount possible from the program. As beneficiaries live longer, the value of waiting to claim until 70 goes up, as demonstrated in the difference in total benefits per the tool's calculations.

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The free calculator is just a starting point, though, when it comes to getting a sense of the trade-offs when claiming Social Security, according to Joe Elsasser, founder and president of Covisum.

Because there are thousands of Social Security claiming rules, a more in-depth analysis can help identify the best way to get the most from the program for your unique situation.

For example, married couples really should coordinate their benefit choices, Elsasser emphasized.

"Couples should make the decision together because on the first death the smaller benefit goes away and the larger benefit continues," Elsasser said.

Why it's important to stress-test your plan

It's also important to remember the current depletion date projections are subject to change, as the Social Security trustees amend their projections each year.

Moreover, congressional legislation could change the program's funding status before that date. That may include higher taxes, benefit cuts or a combination of both. Washington Democrats have put forward proposals that call for raising taxes on the wealthy while making benefits more generous.

Elsasser said he doesn't necessarily tell his clients to plan for a benefit cut but that it is important to gauge the potential impact.

"We advise them to plan under current rules, because in the past, there's always been a compromise," he said. "But then stress-test the plan and say, 'Are we OK if we do get a benefit cut? And if we do, what is our plan?'"

If the outcome is unacceptable, then it may be time to make changes such as reducing spending, saving more or working longer to make sure you can weather those possible cuts, Elsasser said.