How New Social Security Changes Could Impact Your Retirement—and What Educators Can Do to Prepare

If you’re thinking about retiring soon, it’s only natural to have questions about how Social Security will affect your income in retirement.

With changes in leadership and ongoing discussions about the future of the program, staying informed can help you make the best decisions for your financial future—even though no one can predict every turn the road ahead will take.

While it’s impossible to say exactly how Social Security might change, there’s some comfort in knowing that many proposed changes are designed to keep the program solvent for future generations. For example, the current administration has supported plans to increase funding for Social Security by raising taxes on individuals with higher incomes. As it stands today, up to $168,600 in earnings are subject to Social Security payroll taxes.

According to the latest 2024 Social Security Trustees Report, the combined Social Security trust funds are expected to pay full benefits until 2035. After that, unless something changes, benefits could drop to 83%. If you’re retiring sooner, this timeline may feel distant, but it’s worth being aware of. For those with an eye on the horizon, it’s possible that the fund for retirement benefits may run out even sooner, in 2033, which could reduce benefits to around 79%.

This is why so many experts and everyday retirees alike are urging Congress to address Social Security’s long-term solvency sooner rather than later. In fact, a recent study by the National Institute on Retirement Security (NIRS) revealed that 87% of Americans believe Congress should act now to protect the future of Social Security.

What These Changes Could Mean for You

As you plan your retirement, you’ve likely noticed that navigating potential changes in Social Security can feel overwhelming. But understanding some of the key proposals can help you feel more in control. Here are two potential changes that could affect Social Security—and, by extension, your retirement income:

1. Taxing Income Over $400,000: One idea being discussed is to tax earned income above $400,000 to help extend Social Security’s solvency. Currently, wages between $168,600 and $400,000 are not taxed for Social Security. This would be a shift, particularly for higher earners. While this proposal hasn’t been finalized, it’s something to keep an eye on.
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2. Adjusting the COLA Formula: The annual Cost of Living Adjustment (COLA) for Social Security is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). However, many retirees feel this doesn’t fully account for the rising costs they face, especially in healthcare. Some experts suggest switching to the Consumer Price Index for the Elderly (CPI-E), which might better reflect the real expenses seniors deal with. A survey in 2023 showed widespread support for this change, so it’s possible this adjustment could be a step toward better reflecting retirees' needs.

Understanding Your Financial Future

So, what does all this mean for you as you approach retirement? First, it’s important to acknowledge that these proposed changes are just that—proposals. Nothing is set in stone, but staying informed can help you feel more prepared. Here are a few things to consider as you navigate your own retirement planning:

• Be Aware of Social Security Timelines: While full benefits are projected to be paid until 2035, it’s good to keep in mind the potential changes to benefits after that time. Planning for different scenarios, even if they seem far off, can provide peace of mind.
• Look Beyond Social Security: Many retirees are turning to other income sources, such as 401(k)s, pensions, or personal savings, to supplement what they may receive from Social Security. This can help create a buffer in case benefits decrease in the future. If you haven’t already, this could be a good time to start thinking about ways to diversify your income sources.
• Stay Informed on COLA Changes: As you may have noticed, the rising cost of living, especially when it comes to healthcare, can put a strain on your retirement income. Keeping an eye on changes to how COLA is calculated could help you understand how your Social Security benefits may be impacted year-to-year.

You’re Not Alone

Retirement planning can feel overwhelming, but you’re far from alone. In fact, the psychographic and behavioral trends among retirees reveal a lot about how people like you are navigating these changes.

Many are risk-averse at this stage in life, focusing on low-risk ways to ensure their savings last. This might mean sticking with traditional savings methods, working with financial planners, or simply being more conservative in spending. If this resonates with you, know that taking a cautious approach is common and can help you feel more secure in your retirement.

Healthcare costs are another major concern for many retirees. These expenses often rise faster than the general inflation rate, which is why the way COLA is calculated is so important. If you’ve been feeling uncertain about how your Social Security benefits will keep pace with your healthcare needs, you’re not alone. A change to the CPI-E could better align your benefits with your actual expenses, but nothing is confirmed yet.

You’re part of a proactive group—those who actively follow news related to Social Security reforms and seek out information to safeguard their financial future. Staying informed, reading about potential changes, and understanding your options will keep you ahead of the curve. Many retirees are also turning to financial planners to get personalized guidance, especially as they prepare for potential income gaps or benefit reductions.

Keep an Eye on Potential Changes

While leadership changes often bring uncertainty, it’s important to stay engaged with what’s happening in Washington, D.C. Political changes can have a direct impact on Social Security, particularly when it comes to new taxes or benefit adjustments. The key is to stay informed without feeling overwhelmed, focusing on the facts as they come and planning accordingly.

At the end of the day, your retirement is a deeply personal journey, and only you know what feels right for your financial situation. Whether you decide to explore additional income options, focus on healthcare planning, or simply keep up with the news, know that preparation is key.

The future of Social Security may seem uncertain, but staying proactive and informed is the best way to ensure your financial security in the years to come.

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