3 Social Security Changes That Could Have a Huge Impact on Your Retirement

Key Points

• Social Security cuts could leave you with less money each month.

• Changes to full retirement age could force you into a longer career.

• A new formula for Social Security cost-of-living adjustments (COLAs) could change those raises for the better.

• The $23,760 Social Security bonus most retirees completely overlook ›

There are millions of older Americans today who get paid monthly by Social Security. And chances are, you'll rely pretty heavily on those benefits once you retire.

You should know that Social Security could change in a number of ways in the coming years -- for better and worse. Here are three changes to be mindful of, as they could have a significant impact on your senior years.

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1. Benefit cuts

Social Security is facing a funding shortfall in the coming years. The program gets most of its revenue from payroll taxes. But as older workers retire in droves, that revenue stream is expected to shrink.

Social Security can use its trust funds to keep up with scheduled benefit payments until they're out of money. The program's Trustees' latest estimate shows Social Security's trust funds, if combined, running out in 2034, at which point 81% of benefits would be payable. That mean seniors could be looking at an almost 20% cut.

Although lawmakers have some options for preventing Social Security cuts, there's no guarantee they'll be able to do that. Your best bet, therefore, is to save as well as you can for retirement so you have a means of supplementing your monthly Social Security checks.

2. A new full retirement age

It's in lawmakers' best interest to prevent Social Security cuts, which could otherwise spur a massive poverty crisis among retirees. And one option they have for avoiding a broad reduction in benefits is to raise full retirement age, which is when you can collect Social Security without a reduction.

Full retirement age is 67 for anyone born in 1960 or later. Some lawmakers propose raising it to 68 or 69 to lessen the strain on Social Security as older workers retire and file benefit claims in the coming years.

The problem, though, is that raising full retirement age could effectively sentence countless workers to a longer career than they want, since many people can't afford the reduction in Social Security that comes with filing early. You may want to ramp up your savings efforts sooner rather than later in case full retirement age changes and you're forced to accept less Social Security because you don't want to work beyond age 67.

3. A new formula for COLAs

Social Security benefits are eligible for an automatic cost-of-living adjustment (COLA) each year. The purpose of COLAs is to help beneficiaries keep up with their expenses when inflation makes them rise.

The problem, though, is that COLAs have historically done a poor job of keeping up with inflation in practice. So some advocates have been calling for a change in the way they're calculated.

Currently, COLAs are based on the Consumer Price Index for Urban Wage Earners and Clerical Workers. But some advocates would prefer that those COLAs be based on an index that measures senior-specific costs.

If this change comes through, it could result in larger and more effective Social Security COLAs. But it's also, unfortunately, not something to count on. So the best bet, once again, is to save as well as you can for retirement so you're able to supplement your Social Security and keep up with rising expenses.

Even though Social Security has been around for a very long time, the program could shift in the coming years. It's a good idea to keep these changes on your radar with the understanding that none are a given. That could help you approach retirement feeling better prepared.

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