With Social Security trust funds projected to run short of money in 2031 as a result of the impact of the lingering Covid shutdown, some financial advisors are worried they may need to change clients’ retirement projections to prepare for benefit cuts, while others doubt politicians would go through with such a move.

As of right now, the Social Security Trust Funds are expected to see shortfalls starting in 2031, three years earlier than expected, according to a new forecast from the Congressional Budget Office (CBO). Without Congressional intervention to shore up the funds, the SSA will need to cut benefits to retirees and beneficiaries as much as 25% in 11 years, CBO said.

The impact on current and future retirees would be profound. “There’s no question that it markedly reduces retirement sustainability even for clients who’ve done a responsible job of saving over the course of their careers,” Kenneth Robinson, president of Practical Financial Planning in Rocky River, Ohio, told Financial Advisor magazine.

Under current Social Security benefit projections, one of Robinson’s clients has only a 1% chance of running out of money in retirement. “A 20% reduction in Social Security benefits increases that risk to about 24%, while a 30% reduction increases the risk to about 45%,” Robinson said.

“What I don’t know is whether or not it’s time to say that this reduced benefits model is now our default scenario—after all, all it takes to fix it is an act of Congress,” the fee-only advisor added.

Since Social Security benefits are primarily raised through payroll taxes paid by both employers and employees, the unprecedented spike in unemployment rates and pervasive shuttering of businesses is likely to hasten the projected trust fund depletion by three years to 2031, the CBO said. At that point, Social Security will only collect enough money from payroll tax revenues to pay about three-quarters of the benefits retirees have been promised.

For a two-income household where each retiree receives maximum Social Security payments of $3,790 monthly, a 25% haircut would translate to $947.50 less each a month or a total monthly decrease in household income of $1,895.

“Even for clients who are well off, Social Security is part of their retirement plan,” said Michael Garry, founder, JD and CFP of Yardley Wealth Management LLC in  Yardley, Pa.

Still, Garry said, unless a client asks, he is not factoring the potential benefit cut into investors’ retirement plans quite yet. “I’m in denial. I don’t believe it will happen. Congress could cut benefits that much, but I don’t think any politician will if they hope to get re-elected,” he said.

Garry also said he is not worried about any cuts being as steep as 25%, but rather, would expect to see marginal cuts for the highest earners—if any at all.

“Right now, we only reduce projected Social Security benefits in our modeling for those clients who ask us to,” Garry said. “Once or twice we’ve had clients say they think they’ll get nothing and we do that projection for them. If this shortfall is still an issue maybe five to eight years from now, I’ll start to worry."

Emily M. Harper, a private wealth manager at Monument Wealth Management in Alexandria, VA, said the projected Social Security shortfall is “still pretty far down the tracks” given that there’s potential for Congress to act to implement solutions.

High-net-worth clients depend on Social Security less. But clients who rely on Social Security for a large percentage of their retirement income, especially those who take a permanent reduction in benefits by filing before their full retirement age, will be the most impacted if benefit cuts become a reality, Harper said.

“We have not had specific conversations about potential cuts occurring as early as 2031—this is speculative,” she added. But “the benefit of working with a financial planner to map projected lifetime cash flows and evaluate the likelihood of the portfolio meeting a client’s desired goals over their lifetime. We can diagnose if a 25% reduction is truly going to be a problem for a client’s long-term success and which levers will provide the best outcome, whether it’s working longer, saving more now while they can or spending less."

Jonathan Harrington, a financial planner at Milestone Financial Planning in Bedford, N.H., echoed those sentiments. “Clients that are nearing retirement should focus on what they can control. Regardless of what happens with Social Security benefits in five, 11 or 14 years. It’s all speculation in my opinion,” Harrington said.

Right now “people can choose to spend less and save more, which will create the conditions for a period of retirement that is less dependent on social security benefits,” Harrington added.

The CBO report on the Social Security Trust Funds is available here.