Social Security is one of the most important programs for American retirees, providing a crucial income for millions of people each year. However, if you’re still working and looking forward to collecting benefits once you retire, you might need to rethink your expectations about how much you’ll receive. While Social Security will likely still be around when you retire, the amount you get may not be what you expect. It’s crucial to start preparing for potential cuts now to protect your financial future.
What Does the Future Hold for Social Security?
Social Security relies heavily on payroll taxes for funding, and its future is being threatened by a growing imbalance. As more baby boomers retire, the program faces a shortage of incoming funds because fewer people are entering the workforce to replace them. Although Social Security can dip into its trust funds to keep up with benefit payments, once these funds run out, the program may be forced to cut monthly benefits.
The Social Security Trustees have just released a report on the state of the program’s finances. According to the report, the Old-Age and Survivors Insurance (OASI) Trust Fund will only be able to pay full benefits until 2033. After that, it’s projected that Social Security will only be able to pay 77% of the benefits it owes.
Meanwhile, the Disability Insurance (DI) Trust Fund is expected to cover 100% of benefits through 2099. However, if the OASI and DI Trust Funds were combined, the program would be able to pay full benefits only until 2034. After that, it would be able to cover 81% of scheduled benefits.
Time to Act: The Need for Preparation
With cuts looming within the next decade, now is the time to take action. While lawmakers are working on solutions to prevent these cuts, it’s uncertain whether they will succeed. Preparing for potential Social Security cuts means ensuring you have other sources of income in retirement, such as savings.
How You Can Prepare for Potential Cuts
The best way to protect yourself against Social Security cuts is to build personal savings. The more you save now, the less you’ll depend on Social Security benefits in the future. Funding an IRA or 401(k) plan from an early age gives your money the time it needs to grow, helping to build a larger balance for retirement.
For example, if you start saving $300 a month for retirement at age 40 with an annual return of 8% (a conservative estimate based on stock market returns), you could end up with $314,000 by the time you reach age 67. But if you started saving at age 37, your balance could grow to around $408,000 by retirement. On the other hand, waiting until age 45 would result in only $200,000 in savings, assuming the same conditions.
The Numbers Don’t Lie
It’s clear that starting to save earlier will significantly impact the amount of money you’ll have for retirement. Social Security may not provide the full benefits it promised, so building your own retirement fund is essential. The earlier you start, the better.
Social Security Secrets You Might Be Missing
Aside from saving more, there are also strategies you can use to maximize your Social Security benefits when you begin claiming them. For instance, many retirees are unaware of the potential $23,760 Social Security bonus they could be missing out on each year by not using the right strategies. Learning these “Social Security secrets” could boost your retirement income and help you live comfortably in your later years.
Facing the reality that Social Security may not fully support your retirement can be difficult, but preparing for these cuts now will make a huge difference in your future financial security. Starting to save as early as possible and understanding how to maximize your Social Security benefits will allow you to confidently plan for retirement—no matter what changes come to the program.
