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What Could an Average Social Security Check in 2040 Look Like?

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With Social Security’s future being uncertain, those who are still some 10 to 15 years away from retirement might be wondering about the size of an average Social Security check in 2040. The answer to this is not straightforward but rather requires some understanding of the Social Security system and some math as well.

Why do you need to know your future benefits check amount?

It is easy to get an idea of your future Social Security check, but knowing it 10 to 15 years down the line is a challenging task. This is primarily because of recent reports that the SSA is running out of funds.

A 2022 annual report from the Social Security board of trustees noted that the SSA’s cash reserves will run out by 2034. It is estimated that yearly taxes will be sufficient to cover about 78% of the benefits each year after that.

So, it is likely that the SSA will resort to a cut in benefits to balance the rest. As of now, it isn’t clear if the SSA will resort to those cuts or if Congress will figure out a way to fill up the SSA’s cash reserves. This uncertainty makes it difficult to determine the average Social Security check in 2040.

If Congress fails to reach a deal on replenishing the SSA’s reserves, it may reduce the benefits by 24.9%, according to the 2022 annual report. Such a reduction could make life difficult for many retired adults.

According to the SSA, benefits make up at least half of the income for 50% of elderly married couples and 70% of elderly single people. With Social Security being so important, it is essential that those expecting to retire in the next 10 to 15 years or so have an idea of their possible average Social Security check in 2040.

Average Social Security check in 2040

Currently, the average monthly Social Security check is around $1,900. It is very difficult to precisely predict how the economy will go, or how much inflation will be 15 years from now. Still, we can make an educated guess.

Assuming an inflation rate of 2.25%, the average benefit would be $2,663 in about 15 years from now. If we adjust this number with the past 20 years’ COLA (Cost of living adjustments) of 2.6%, the average benefit amount will be around $2,800.

However, considering the recent predictions that benefits would need to be reduced by 23% around 2034, the average benefit amount will drop to around $2,200. It must be noted that these numbers are only averages, and not everyone’s benefits will be the same, i.e., some will get more than $2,200, while some will get less than that.

How to prepare

Now that you have an idea of the average Social Security check in 2040, it is important that you start preparing for the future reduction from now on. You can use the following tips to prepare for the future:

  • If you are planning to retire early, you can save more money from your monthly paycheck for your retirement.
  • If you are planning to retire later (60 years or above), it is better that you continue to save and grow your retirement corpus. Also, it is recommended that you resort to comprehensive retirement financial planning, including adding other sources of income.
  • You should try to make the most of the employer-based retirement accounts to get the matching employer contribution. Increasing matching employer contributions will get you compounding benefits on these investments as well.

Measures to balance SSA’s reserves

Even though the SSA isn’t expected to run out of cash until 2034-35, several measures are already being discussed to address the shortfall. If implemented, each of these measures will have a different impact on different types of taxpayers. These measures include:

Increasing the payroll tax rate

If SSA decides not to reduce the benefits, one way to compensate for the shortfall will be to increase the payroll tax rate. Currently, Social Security is funded through a 6.2% payroll tax and 6.2% that employers pay.

It is likely that the tax increase is spread equally between the employee and the employer. There is also a possibility that the tax increase is allocated more to the employer.

A legislative proposal from Rep. John Larson (D-Conn.) favors the second option. The proposal, called the Social Security 2100 Act, would raise the federal payroll tax rate by 6.2% for employers for employees with income more than $400,000.

Raising wages subject to tax

Increasing the earnings limit subject to taxation is another option being discussed to boost tax revenue. If the wage limit is increased, it would only affect taxpayers whose wages are more than the current contribution and benefit base.

For example, if the current contribution limit is $137,700 and your income is $170,000, you pay Social Security taxes on the first $137,700 of your income. Now, if the limit is raised to $200,000, you will have to pay the tax on all your income.

Raising the full retirement age

Increasing taxes is never a popular measure, so there are good chances that lawmakers raise the full retirement age for Social Security. This means that people would be working longer before they start collecting benefits.

There are proposals to raise the retirement age to 69. Increasing the retirement age would impact people with low income more.

Reducing COLA adjustments

The SSA adjusts the Social Security checks every 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. To boost its cash reserves, the SSA is likely to make changes to the COLA formula. If this happens, the benefits may fail to keep pace with inflation.