Fidelity Warns a Social Security Benefit Reduction Could Cost a $500,000 Portfolio $161,000 - Here’s How to Get Ready

Planned Social Security reductions could eventually have a meaningful effect on retirement finances. The 2026 Social Security Trustees Report projects that the retirement trust fund will exhaust its reserves in the fourth quarter of 2032, a quarter sooner than the prior estimate.

After that point, payroll taxes and other revenue would be enough to pay only about 78% of scheduled retirement and survivor benefits. Because the law does not allow the program to pay out more than it collects, checks would fall by roughly 22% unless lawmakers intervene. Retirees who rely on savings to make up the difference could find it harder to keep their money lasting throughout retirement.

Fidelity estimated what that shortfall could mean for one hypothetical couple, and outlined several ways to reduce the strain on a portfolio.

How Fidelity arrived at the $161,000 gap

The average retired-worker Social Security benefit is projected to be $2,071 a month in 2026. If both spouses in a couple received that amount, their annual benefit would total $49,704, and a 22% reduction would trim it by about $10,935.

In its analysis, Fidelity used a slightly lower assumption of about $2,000 per person, which works out to a yearly loss of $10,560. The example couple depends on a $500,000 investment portfolio as its only other income source. To cover the missing benefit, they would need to withdraw roughly 2% more from that portfolio each year than originally planned.

Using a 7% annual return and increasing the extra withdrawal by 2.5% each year to account for inflation, Fidelity found that the portfolio would grow to $983,576 without the cut but only $822,344 with it over 10 years, leaving a difference of $161,232.

Roughly $118,000 of that amount comes from the extra withdrawals themselves. The remaining $43,000 or so reflects the investment growth those dollars would have generated had they stayed invested.

Fidelity said the example is meant only to illustrate the effect of a benefit reduction. It also did not include the couple's regular retirement withdrawals. Actual outcomes would vary based on returns, inflation, withdrawal timing and how long the money needs to last.

What a benefit cut could mean for retirees in each state

A June analysis from the Committee for a Responsible Federal Budget estimated that a 24% reduction would lower current Social Security retirement benefits by about $345 billion a year. The group noted that the Trustees have since revised their estimate to about 22%.

Under the 24% scenario, the average monthly reduction would be $500 nationwide and exceed that level in 29 states. Retirees in Connecticut would see the largest average drop, at $556 a month, followed by New Jersey at $554, New Hampshire at $553, Delaware at $549 and Maryland at $541.

These figures are state averages, so an individual retiree's cut would depend on their own scheduled benefit.

Why waiting until 70 can soften the blow

Delaying benefits until age 70 permanently increases the monthly payment, which can offset a large portion of a future reduction. Social Security awards delayed retirement credits of 8% a year after full retirement age for people born in 1943 or later.

With a full retirement age of 67, waiting until 70 boosts the benefit by 24%. A monthly payment of $2,000 at 67 would rise to $2,480 at 70. After a 22% cut, that would mean about $1,560 if claimed at 67 and roughly $1,934 if claimed at 70.

Even after the reduction, the age-70 benefit would be only about $66 less than the uncut $2,000 payment at age 67. The tradeoff is that waiting means going three years without checks, so this strategy works best for people who are healthy and can cover their expenses until 70.

How catch-up contributions can help workers in their 60s

People still working before retirement have time to build more savings before any cut takes effect. Under 2026 IRS limits, employees may contribute up to $24,500 to a 401(k) or similar workplace plan. Savers age 50 and older can add an extra $8,000 catch-up contribution.

Workers ages 60 through 63 qualify for a larger $11,250 catch-up contribution, which brings the possible total to $35,750 a year. IRA savers age 50 and older may contribute an additional $1,100 on top of the standard $7,500 limit.

A larger balance also reduces the withdrawal rate needed to cover a benefit shortfall. On a $600,000 portfolio, Fidelity's $10,560 gap would equal about 1.8% of assets instead of 2.1%.

How guaranteed income can cover essential expenses

Another option is to convert part of savings into guaranteed income, which can make day-to-day budgeting less dependent on Social Security. Fidelity points to income annuities, which exchange a lump sum for a steady stream of payments to cover essential bills.

An immediate income annuity starts paying right away, while a deferred income annuity begins on a future date chosen by the buyer. Some immediate annuities also include annual payment increases to help offset inflation.

Those guarantees depend on the insurer's ability to pay. Deferred income annuities are irrevocable and do not have a cash surrender value, so it is important to compare fees and terms before committing money.

Why assuming zero Social Security is not the answer

A 22% cut would still leave most of the benefit in place. For Fidelity's example couple, planning for no Social Security at all would mean replacing about $48,000 a year from savings rather than $10,560.

“Monthly checks will not go away,” Fidelity's Maura Clow said in an October 2026 Fidelity Viewpoints video. When asked whether younger workers should assume Social Security will not be available to them, she said they should not. She added that Congress has historically made sure benefits were paid.

Lawmakers from both parties introduced proposals in 2026 aimed at changing how a solution could be developed. The House's Bipartisan Social Security Commission Act, backed by Reps. Tom Cole and Tom Suozzi, would create a commission to focus on long-term solvency. The Senate's PROMISE Act would direct the Social Security Advisory Board to draft a bill designed to keep the trust funds financed for at least 50 years, and it sets rules for bringing that bill to a vote.

The bottom line

Fidelity's $161,000 estimate illustrates what it could cost one hypothetical couple to cover a benefit cut from savings over 10 years. It is not a prediction, and Congress still has several years to act before the retirement trust fund runs out of reserves.

Morningstar research suggests that the highest safe starting withdrawal rate for new retirees is 3.9% over 30 years. Adding Fidelity's extra 2% to that figure would push withdrawals to about 6%. Review your withdrawal plan using a Social Security estimate that is 22% lower, and test it against a market downturn early in retirement. If the plan only works with full benefits, there is still time to save more, delay claiming or make other adjustments.

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