The new web tool shows how social security cuts can hit your wallet

A San Francisco Social Security Administration office.

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It is no secret that the funds used by Social Security to pay out benefits are running out.

New proposals on Capitol Hill aim to improve the solvency of the program.

How dramatic these changes need to be depends on how quickly changes are made.

Likewise, people planning their retirement now may want to make adjustments due to unforeseen events that may occur later.

This includes possible reductions in social security retirement benefits.

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“When you look at all of those ‘what-ifs’, the adjustments you make now to plan something later are much smaller,” said Joe Elsasser, founder and president of Covisum, a social security software company.

To that end, Covisum has developed a calculator that both consumers and financial advisors can use to gauge how effective retirement social security benefits cuts can be on their bottom line.

Of course, reductions in benefits cannot be taken for granted.

A year ago, on Thursday, the Social Security Agency released projections that their trust funds could be depleted in 2035. At this point, 79% of the promised benefits would have to be paid.

An official update is expected to be released soon with the agency’s annual trust report. Meanwhile, other predictions have already speculated that the expiration date could be earlier due to the economic aftermath of the Covid-19 pandemic.

In order to remedy this deficiency, experts generally expect some changes. Cuts in benefits are also possible, as are possible wage tax increases or a combination of both.

When President Ronald Reagan launched the last major social security reform in 1983 to repair the program’s then-troubled finances, the retirement age was gradually raised to 67 and some taxes were levied on benefits for the first time.

The key for anyone looking to get social security benefits now is not to base their decision on concerns about what changes may come.

“The temptation could be to react to fear,” said Elsasser. “It’s seldom the best way to do financial planning.”

“A realistic understanding of the implications, even in the worst case, is better than stepping in with your eyes closed,” he said.

Covisum’s new calculator helps advisors evaluate social security decisions. For many people, this is the cornerstone of their retirement provision, said Elsasser.

The calculator can charge customers’ plans based on benefit cuts and other negative scenarios such as poor market performance or negative health situations to determine whether their plan is still okay.

“If so, then you don’t have to react to fear,” said Elsasser.

If this is not the case, adjustments such as reducing the cost of living or working longer hours may be necessary.

There is also a free version of the calculator available to consumers.

This version requires four data points: year of birth, full retirement benefit amount, percentage of hypothetical benefit reduction, and the year in which the reduction occurs.

It then compares a person’s life expectancy results in five-year increments based on how early to claim – from age 62 or until age 70 – and how that would affect whether or not benefit cuts were made.

Ultimately, the results can be a starting point for evaluating the potential outcomes, which will hopefully lead them to avoid early availment – and therefore avail of lifelong reduced benefits – just because they fear benefit cuts, Elsasser said.

Research has shown that these cuts would likely be less than 25% if they happened at all, he said.

In particular, the calculator does not take into account the idea that the benefits could go to zero. With current tax revenues continuing to support the program, this is a highly unlikely scenario, said Elsasser. Younger generations should also receive income from the program in the future.

“The probability that it will go to zero is as close as possible to zero,” said Elsasser.

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