By Ryan Ermey

Copyright cnbc

A brief reminder of how Social Security works: Workers pay Social Security taxes, typically via payroll deduction, on earnings up to $176,100 for 2025. Both you and your employer put money into the program to the tune of 6.2% of your income. That money goes into a trust fund from which the government pays out benefits to retirees, their survivors and people with qualifying disabilities.

You receive payments when you retire, with the amount varying depending on when you claim the benefits and how much money you made during your working years. The program is meant to be a safety net for retired Americans, but not their sole source of income. Benefits are designed to replace around 40% of your pre-retirement earnings, according to the Social Security Administration.

Given that the coffers are running low, something has to give in the next few years, says Catherine Collinson, president and CEO of the nonprofit Transamerica Institute.

“To put it in simple terms, they’ll have to change the benefit formula,” she says. “They could raise the payroll tax. They could also raise full retirement age — right now it’s 67, which is one of the oldest in the world.”

Or, if Congress fails to act altogether, beneficiaries could see reduced payments across the board. To prepare for these possibilities, financial pros recommend taking a few steps.

1. Get your Social Security statement

Even if you’re years away from retirement, you can sign up for an account with the Social Security Administration’s website and download your most recent statement. The government estimates your payment — a fraction of your pre-retirement income — using a formula that takes into account the average of your highest-earning 35 calendar years.

Your statement will show an estimated monthly payout, which assumes you’ll continue to earn your current salary from now until retirement. It also shows you the difference in your benefit depending on when you claim it: For workers born in 1960 or later, the full benefit kicks in at age 67. Claim earlier, and you’ll get a reduced benefit. Wait until age 70, and you’ll get an 8% per year bump.

“Knowing where your overall benefit stands is really helpful,” says Collinson. Understanding the rough dollar amount you can expect to receive in retirement can help you plan for any future changes to your benefit, she adds.

2. Do some backward math, and plan for the worst

Knowing the rough amount of your Social Security benefit, as things stand, can help you figure out if you’re on track to achieve the lifestyle you want in retirement. As a general rule, if you have a well-diversified portfolio, you can afford to withdraw roughly 4% a year in retirement without running out of money.

Run your current retirement portfolio through a compounding interest calculator to figure out how much money you might have by the time you stop working. Multiply by 0.04 to find your annual withdrawal amount. Now add in your Social Security benefit. Does that seem like enough to live on? If so, you might be in OK shape. If not, it’s worth considering how to bolster your savings.

If you want to go beyond back-of-the-napkin math, working with a financial advisor can give you a more comprehensive picture of what your finances could look like in the future. A financial pro can also walk you through scenarios in which Social Security gets a haircut, or even the unlikely event that it disappears altogether.

“In decision analysis, you look at the scenario for planning — worst case scenario, best case scenario, average case scenario,” says Phillip Battin, president and CEO of Ambassador Wealth Management. “The American mind always wants to build on the best-case scenario, and that’s called idealism, or utopian thinking, which obviously gets us in trouble.”

Planning for a reduction in Social Security — or other downside scenarios, like an untimely slowdown in the market — can provide financial security, and a bonus glut of cash should things turn out well, he says.

“It comes down to planning for every scenario,” he says. “It’s the only way to have true peace of mind.”

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