For the past 25 years, the Social Security Trustees have dutifully reported to Congress that the reserve account was in trouble.

By about 2033, the “savings” account would be depleted, and benefits would be cut. Our oldest Americans would then receive reduced payments. Current projections indicate a 23% cut starting in early 2033.

Furthermore, their monthly benefits would be further reduced with outsize increases in Medicare Part B premiums.

But what about financial advisors? How will their businesses be affected if Congress fails to address the solvency problem?

Client Expenses Won’t Go Down

Essential expenses in retirement rarely decrease. Rather, they typically rise each year with inflation.

Between 2026 and 2033, if overall inflation remains a moderate 2.5%, excluding Medicare costs, essential expenses could increase by about 18%.

Medicare Part B premiums are projected to rise much faster than overall inflation.

For clients in the standard tier, plan for Part B premiums at $325.90 per person per month. That’s up 61% from the 2026 standard premium of $202.90. Plan for higher-income clients to pay much higher premiums, topping $1,100 per person per month for the highest earners.

Projected Cuts to Benefits Hit All Clients

In just seven years, all clients will see a 23% cut in their Social Security benefits if Congress does not change the law. There is no “grandfathering” of benefits. Clients who are already constrained or overspending in retirement will be in a highly precarious position.

And clients will look to their advisors to find solutions. For clients without such resources as rental property, a highly appreciated house to leverage, an inheritance or deferred compensation payouts, the only option will be to draw more from their portfolio.

Withdrawal rates will increase faster than recommended for sustainability. Tax liabilities may increase. And legacy plans may be diminished.

The effects on each client — and on individual portfolio sustainability — depend on the specific circumstances. Here are two examples:

  • A couple in their early 60s today, with substantial expected Social Security benefits, could see a reduction of about $24,000 a year. Assuming they both live for an additional 15 years, the overall shortfall could exceed $365,000.
  • A 65-year-old woman with an expected $3,000 monthly benefit at full retirement age is looking at a $14,000 annual cut in benefits if a reduction starts in 2033. That’s a possible $250,000 shortfall if she lives another 15 years.

Advisors should plan for a 1% to 2% higher withdrawal rate to cover the non-Medicare essential expenses.

In 2033, even more cash will be needed to cover Part B premiums and income-related monthly adjustment amounts, and Part D IRMAA for higher-income clients.

Married clients with pre-2033 annual cash flow from Social Security of $100,000 could end up with only $60,000:

  • The 23% cut reduces income by $23,000.
  • In the 50% IRMAA tier, Social Security is reduced by another $17,000.

Connecting all the dots, many clients will see their Social Security cash flow cut by 25%, 40%, 50% or more. And their overall assets will plummet.

Steps to Take

How can clients make up the loss in funds? In two words: They can’t.

At least not easily. Taking on excessive investment risk doesn't guarantee that a portfolio can recover from an additional 1% to 2% drawdown. And hoping that clients can significantly cut essential expenses is unrealistic.

But advisors can start to address concerns now, especially for clients in their early 60s. Three direct steps may help many clients:

  • Proactively discuss the issues that will result if Congress fails to implement changes.
  • Review each client’s current Social Security statement and emphasize the downside of claiming too early.
  • Model this possible cut in Social Security benefits and the long-range damage to portfolios if nothing is done to manage the Social Security trust funds properly.

And while many clients hesitate to contact their representatives in Congress, that is the most critical action they can take.

Marcia Mantell is the founder and president of Mantell Retirement Consulting Inc., a retirement business and education consulting company in the financial services industry.

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