Social Security’s Day of Reckoning: Why You Must Prepare to Fully Fund Your Retirement

You’ve heard the warnings—Social Security is running out of money. You can review the 2024 report HERE to see the details. According to the Social Security Administration, unless reforms are made, benefit cuts could begin as early as 2034, with recipients seeing reductions of 20-25%. By 2064, there would be no money left to pay out Social Security Disability Insurance (SSDI). Yet millions of Americans continue to rely on Social Security as their primary retirement income source -- and hundreds of thousands of service members plan their retirement savings based on an assumption they'll get full Social Security, too.

This belief is dangerous: try to imagine Future You getting only $25,000 a year instead of $35,000 for retirement income. That's almost $1,000 a month less! What do you cut back on?

Such news may upset you and leave you asking, "how can they do that, they can't take away my retirement -- I'll be too old to work!?"  The problem is that Social Security is not, and never was, designed to be a retirement pension. For over 80 years, however, it was the only retirement income for over 40% of Americans, and so unfortunately we've all come to believe that Social Security is something like a national pension we all deserve in retirement. It’s time to take a look behind the curtain at what it really is, what the future of Social Security looks like, and take control of your own financial future.

What Social Security Is—and What It Isn’t

Social Security was introduced in the 1935 as part of the Old Age and Survivors Insurance (OASI) program to provide basic income for retirees, survivors, and disabled individuals. It was never intended to be paid to everyone who retired, or to cover all your retirement needs. Just those too old or disabled to work. Over time, the eligibility criteria have loosened so that almost everyone gets Social Security. And yet today, the average monthly benefit is just $1,800—far below what most people need to maintain a comfortable lifestyle.

Social Security is funded in two ways: taxes collected on payroll taxes in the current year are paid directly to current retirees, and interest earned on the Social Security Trust Fund makes up the difference when the taxes collected aren't enough. So what's the problem? There are a few:

1. While you pay taxes in, that money is not held in an account for you, but instead paid out to people who are no longer working (if this sounds like a Ponzi Scheme, it's not too far off!)
2. During your working years you earn credits based on your total qualified earnings, which are generally only your W-2 paychecks that the IRS can tax today (you get no credit for self-employment)
3. The Trust Fund has been used by almost every president since FDR as a "slush fund" to pay for other projects (most recently the Trump Administration spent the Trust Fund down to $0 in 2017 to invest in ballistic missile defense weapon systems [source])

As a result of America's aging population, the Baby Boomer retirement flood, and fewer Millenials and Gen Z'ers taking on traditional 9-5 W-2 jobs and paying taxes for Social Security, we are already on the verge of not having enough tax revenue to pay the entitlements of all those currently retired. As more Americans retire, there will be even less money to go around. Adding to the issue, while the Social Security Trust Fund was briefly repaid, it, too, is projected to run out of money. Thus by 2034, the system will no longer have enough funds to pay out full benefits; unless taxes are raised substantially, this will mean that everyone will have to take a 20-25% cut starting in 2034. Additional projections indicate those cuts may increase to 35-50% by 2050! . . . so, when were you planning to retire . . . ?

Why Military Members Need to Fully Fund Retirement

The truth is, most Americans save far too little. In 2023, the average U.S. household savings rate was just 3.5%, a shockingly low figure considering the rising cost of living and increasing life expectancy. Yet most Americans (about 40%) have been able to retire and survive on such low savings thanks to the added benefits of Social Security. In fact, as of 2023 the average yearly cost of living of retirement in the U.S. was about $48,000 for a married couple, and the average yearly benefit from Social Security for this married couple was $35,000.

This typical retired American couple would need only $13,000 in savings or investment income each year to cover the gap, which would require only about $300,000 in total retirement savings to sustain until the ends of their lives. The average retirement savings across all families in America is about $334,000, so crazy as it seems, things have kind of worked out (source). On the other hand, an equal number of households (40%) have only Social Security and zero retirement savings, so they have to figure out how to live on $35,000.

When at least 8 out of 10 Americans rely on Social Security to cover 75-100% of their retirement expenses, it's obvious that as cuts loom, this strategy is no longer viable. At a minimum, you've got to expect to make up at least $10,000 a year in retirement income just to get by, which is to say you'll need to -- STARTING TODAY -- plan to save twice as much for retirement to make up for the loss of Social Security. Military members, fortunately, have access to unique benefits that provide a head start.

The Retirement Shortfall

Here’s an example of what’s required to retire comfortably:

• A $100,000 annual retirement income requires $2-2.5 million in savings to sustain a 25-30 years
• When $35,000 is provided by Social Security, the self-funded amount drops to $65,000 and the savings target drops to $1.1-1.2 million
• After Social Security benefits are cut 25%, the self-funded amount rises to $75,000 and the savings target increases to $1.5 million
• If cuts actually occur at the "worst case" projection of 35% or more, the savings target is even more

That means that anyone who is following along a traditional retirement savings plan, whether that's a "DIY" plan or working with a Financial Advisor, and not deeply discounting the Social Security benefit will come up at least $250,000 short of the savings balance they need to retire. This gap can’t be ignored. If you're in the military, you need to recalibrate your savings plan and retirement goals now, confirm that you're taking advantage of all the financial benefits on offer through the Blended Retirement System (BRS), and ask if your goals are really appropriate for the Dream Retirement you envision for your future.

Case Studies: The Cost of Not Planning

Case Study 1: Jane, 24-Year-Old E-4

• Situation: Jane is in her second enlistment and plans to leave the military after eight years. She’s saving only 5% of her pay into the TSP, which gives her an effective retirement savings rate of 10% once the BRS Matching Contribution (5%) is included. She assumes Social Security will cover much of her retirement, and she doesn't need to save at or above the 15% rate recommended.
• Challenge: With Social Security cuts, Jane would need to fund almost 100% of her retirement expenses from personal savings, and should raise her total retirement savings rate to at least 20%, including the BRS Matching. This means she should triple her current TSP contributions (in dollars).
• If Jane contributes $7,000 annually to her TSP and takes full advantage of the 5% Matching, invested 100% in the TSP C-Fund, she can amass $2 million by age 60!

Case Study 2: John, 42-Year-Old O-5

• Situation: John is three years from retirement and expects his income to come from his pension and VA Disability to pay an inflation-adjusted $100,000 per year.
• He and his wife plan to continue working, and forecast their combined Social Security benefit to be an inflation-adjusted $65,000 per year based on their high annual salaries.
• They are planning for an Upper-Middle Class retirement living on $160,000 per year, but a 25% Social Security cut would reduce their benefits by $16,000 per year.
• Challenge: John risks underestimating how much personal savings he needs to offset this shortfall by approximately $400,000 of additional retirement savings needed by age 62.
• Solution: John and his wife discount Social Security and John opens a Roth Individual Retirement Account. He saves the maximum $7,000 annual contribution limit this year, and each year until age 50, then takes advantage of catch-up contributions ($8,000 total per year) to save even more through age 62. His IRA reaches a balance of $425,000 just in time to retire at 62!

Military Wealth Coach Strategies for Closing the Gap

-->The Value of the Blended Retirement System (BRS)

1. The BRS provides a defined benefit pension with an annuity value of $750,000–$1.2 million for a 20-year career, based on your final retired rate and pay grade. (NOTE: This is estimated using the "4 Percent Rule", or Safe Withdrawal Rate, to convert your annual benefit into an annuity.)
2. Combined with TSP contributions and the BRS Matching 5%, you effectively get a "free" 5% boost to your savings, which you can use to plan to overcome your Social Security shortfall.

-->The iCASH Budgeting System

Stop "backwards budgeting": when you start with your income and subtract your expenses in order to find out how much you can save each month, you're guaranteed to come up short. Paying for retirement is WAY more expensive than paying for your XBox or Netflix subscription, and you should always budget for your biggest expenses first. That means you've got to start with savings.

Our iCASH system is designed to help military members accomplish better budgeting by starting with I: Identify Dreams and Goals to get a picture of how much your Retirement Dream lifestyle will cost, then working backwards to C: Calculate the Cost so you know how much you'll need to save each month to get there. Short of building your own iCASH budget (hint: we can help -- heck, we'll even do it for you!), some general "Smart Saving Strategies" you can start following today include:

• Save 40% of your pre-tax income across all accounts, including retirement, emergency savings, and non-retirement investments.
• Save a minimum of 10% of your total income (or about 15% of Base Pay if you're receiving BAH) to your TSP retirement account: the 5% BRS Matching will bring you up to the necessary 15-20% rate.
• Totally ignore Social Security income when planning for your retirement income -- that way whatever you do eventually get from Uncle Sam and Social Security will be extra!
• Invest aggressively until you are within 5-10 years of retirement: more than 10 years from retirement, you need the maximal returns of a 100% stock portfolio. Forget bonds and ditch Lifecycle Funds!

What About Social Security Reform?

It may be really hard to believe that Uncle Sam and our elected leaders would let Social Security run out of money. I'm sure they don't even believe it yet. But with an annual cost of $1.4 Trillion for Social Security balanced against an annual budget of nearly $900 billion for Defense and $732 billion in interest payments on the National Debt (and only going up), America can't afford everything anymore. Something's gotta give -- what would you pick to cut? Sure, Congress could surprise us and act to preserve Social Security—through measures like raising taxes or increasing the retirement age—counting on reforms is a gamble.

You've got a choice, and one you've got to decide on right now. Are you willing to assume that Social Security will be saved so you can continue to spend your paycheck, avoid savings . . . and discover that you can't retire at age 62, but instead need to work into your 70s? Or can you muster up a little bit of good old-fashioned discipline and start saving like your future depends on it? Because it does.

Conclusion: Take Control of Your Financial Future

Social Security’s future is uncertain, but yours doesn’t have to be. As a military member, you have tools like the BRS pension, TSP, and VA benefits to build a fully self-funded retirement. The key is to act now.

The Military Wealth Coach can guide you through this challenge, using tools like our iCASH Budgeting System to ensure you’re prepared for retirement without relying on Social Security. Check out our upcoming book, The Ultimate (Military) Retirement Plan, for in-depth strategies to secure your Dream Retirement. In the meantime, sign up for our weekly newsletter HERE and be the first to know when the book drops -- and to continue to receive expert money hacks and savings strategies delivered every week to your inbox!