Yahoo Finance's Stephanie Asymkos explains how to plan for social security reserves running out a year earlier than expected.
AKIKO FUJITA: A new report from the Social Security Administration reveals Social Security benefits are expected to be slashed even sooner than expected. Let's bring in Yahoo Finance's Stephanie Asymkos, who's been following this story for us. Stephanie, bottom line, what does this mean for retirement planning now?
STEPHANIE ASYMKOS: So every year, Social Security and Medicare trustees report on the current and projected financial status of the two programs. And last week's report really sent some alarm bells to ring throughout the country because it was found that Social Security reserves will run out in 2033, which is one year sooner than anticipated.
And while that sounds very scary, it does not signal the end of days for this government program that's nearly 90 years old. But those coming into retirement should brace for a benefit reduction. So those Americans within that retirement window, that means that Social Security will probably only pay out about 76% of those scheduled benefits. And that could translate to about thousands less every year in payouts.
The second major headline maker of this report was that the fund pays out disability. Those reserves will run out in 2057, which is actually eight years earlier than expected. So at that time, Social Security will pay out about only 91% of the scheduled disability benefits.
ZACK GUZMAN: Yeah, running out of money, you know, no matter which way you want to slice it, if it's reduced benefits. Either way, not good for people who are looking to depend on these in retirement. But the question, I guess, there is, you know, what triggered the pull forward? And we know COVID's a big question mark on all these programs as well. But is there a certain maybe leading factor you'd be able to point to in terms of why it's going to run out sooner?
STEPHANIE ASYMKOS: Right, there's no mystery here. Unfortunately, this is another negative outcome of the pandemic spurred economic fallout. This dwindling pool of reserves has had a lot more tugs on it from the past 18 months. We know that Americans are being forced into early retirement, so that pulls on the system, and that incomes have also been interrupted, which is another pull.
The report cited that employment earnings and interest rates and GDP has dropped substantially. It also took into consideration just elevated mortality rates through 2023 due to the pandemic. And then there's also been a recent reduction in immigration, and then just low birth rates than previously thought. So all of this really underscores just the need for retirement savings beyond these government programs. And they're wonderful, but they can't be someone's just exclusive plan for their golden years.