Should Your Plan Anticipate Future Social Security Benefit Cuts (Part 2)?

This post is a follow-up to our post of July 2, 2025. In that post, we talked about the possibility of future Social Security benefit cuts and how you can use the Actuarial Financial Planner to estimate the financial impact on your current Funded Status of possible future reductions in your benefit(s). 

It is almost a year later, and we have no more certainty as to policy changes that might be implemented on or prior to the system’s forecasted trust fund exhaustion. We do know that this issue has gained significant attention in the U.S. as both political parties are proclaiming that they will be the party to “Save Social Security” and the other party will not. Unfortunately, no one knows exactly what that phrase means, except that it presumably involves policy changes that would prevent the trust funds from becoming insolvent. It is still unclear, however, how much of the projected funding gap would be closed through increased revenue or though reductions in benefit payments. In this post, we will discuss how much of the trust fund exhaustion problem can, or possibly will, be solved by increased revenue and/or benefit cuts.

Top 20 Reasons Why I Recommend the Actuarial Approach for Managing Spending and Investing in Retirement

The Actuarial Approach:

1. Employs an easy-to-understand and robust financial metric (Household Funded Status)
2. Permits adoption of easy-to-implement guardrails that suggest future spending changes
3. Uses basic actuarial principles and processes (time value of money, comparison of assets and liabilities, mortality, annual valuation process, etc.) consistent with general principles and processes used by actuaries to measure the financial sustainability of other financial systems
4. Uses basic financial economic principles (Liability Driven Investing (LDI), risk-adjusted discounted cash flows (RADCF))
5. Can reflect all future spending liabilities and all sources of income/assets.
6. Permits matching of the present value of non-risky assets/investments with the present value of essential expenses to guide investment decisions
7. Provides flexibility in risk tolerance (through personal selection of assumptions and selection of essential vs. discretionary expenses)
8. Provides flexibility in liability measurement by permitting different future increase assumptions for different types of expenses (for example, higher future assumed increases for health expenses or taxes and lower future assumed increases for future discretionary expenses)
9. Provides an actuarial model that uses a simple, one-tab input/output Excel spreadsheet
10. Is more robust than Strategic Withdrawal Plans or Monte Carlo models frequently used by advisors.
11. Provides a reasonable, rational and reliable valuation process (the household funded status is expected to remain constant from year to year if all assumptions, including spending, are realized and unchanged.
12. Helps assess and manage risks in retirement through stress-testing of assumptions
13. Easily accommodates non-linear spending (front-loading of expenses for example) or non-linear sources of income (future asset sales for example)
14. Facilitates superior budgeting
15. Helps households make more informed financial decisions (by showing the expected impact on the Funded Status of actually making the decision).
16. Quantifies how much you can afford to spend in retirement, not how much you can safely withdraw from your portfolio
17. Contains many levers to make your decumulation plan more or less conservative (changing assumptions, varying size of target Rainy-Day Fund or changing mix of essential/discretionary spending)
18. Enables more accurate couples planning
19. Contains no potentially confusing probabilities of success/failure
20. Is free