Concerns about the long-term sustainability of Social Security have been growing for years. The 2025 Trustees Report projects that, without changes, the program’s trust fund will be depleted around 2033. At that point, payroll tax revenue alone would cover roughly 77% of scheduled benefits, meaning retirees could face a benefit reduction of about 23% if Congress does not act.
While it is impossible to predict what future legislation might bring, this projection is enough to make many professionals, especially those in mid to late career, wonder what can be done now to prepare. Fortunately, there are proactive steps you can take today to offset the potential impact of a Social Security benefit reduction.
The most direct and efficient way to prepare is by saving more through tax-deferred plans. Contributions to a 401(k), Health Savings Account (HSA), or Nonqualified Deferred Compensation Plan (NQDCP) allow earnings to grow tax-deferred, making them more efficient than after-tax savings vehicles.
For high earners, the annual contribution limits on 401(k) and HSA plans often mean the NQDCP is the most flexible tool available for incremental savings. Even a small increase can make a significant long-term difference.
For example, for someone earning $300,000 annually with 32 years until retirement, an additional 1% contribution (about $3,000 per year) could fully offset the projected 23% Social Security shortfall, assuming a 6% annual return and typical withdrawal rates.
The earlier you start, the smaller the adjustment needed. The following examples show the additional savings needed for two income levels: one for an individual earning $300,000 annually and one for an individual earning at the 2026 Social Security wage base of $184,500.
Even if you are very close to retirement, there are still options to help mitigate this risk. While the percentages above rise sharply with age, they remain below 100%, meaning it is still possible to make meaningful progress toward closing the gap, even late in your career.
It is also important to note that these examples are based on specific compensation levels. Someone earning closer to the Social Security wage base would need to contribute a higher percentage of income to offset the same benefit reduction, since Social Security represents a larger share of their total retirement income.
While it is always beneficial to save more, after-tax savings are less efficient than tax-deferred options. Because after-tax contributions are made with dollars that have already been taxed, you must save more nominal dollars to achieve the same after-tax outcome later.
For example, to match the benefit of saving an extra 1% in a tax-deferred plan, a participant in a 35% tax bracket would need to save roughly 1.5% after tax to achieve the same long-term result. That is a 50% higher savings rate to reach the same net income in retirement.
Some investors may be tempted to make up the difference by increasing investment risk in hopes of achieving higher returns. While higher equity exposure may raise long-term expected returns, it also introduces volatility and downside risk, especially for those nearing retirement.
It is important to remember that Social Security is designed to be a stable, guaranteed income stream. Trying to offset potential benefit cuts by taking on additional investment risk can undermine that safety net. For most individuals, increasing savings or optimizing tax efficiency is a more prudent and controllable way to close the gap.
The good news is that you do not have to make these adjustments alone. Employers play a crucial role by offering flexible savings tools and education through their Nonqualified Deferred Compensation Plans (NQDCPs).
At KBA, we help plan sponsors design plans that maximize flexibility and give participants the ability to adapt their savings strategies as conditions change. For participants, that means having more control, whether to save more, diversify their deferrals, or adjust timing and investment strategies, to prepare for potential issues such as future Social Security reductions.
Social Security’s challenges do not need to derail your retirement confidence. By taking small, intentional steps today, saving a bit more, optimizing your use of tax-deferred plans, and maintaining a disciplined strategy, you can effectively offset even a 20% to 25% reduction in benefits.
For plan sponsors, ensuring your participants have access to flexible deferral opportunities and clear guidance is one of the most valuable ways to help them prepare for the future.