Social Security plays a central role in many people’s retirement plans. For some retirees, it’s a helpful source of supplemental income. For others, it’s their main source.
Recently, the Social Security Trustees reported that the program’s Old-Age and Survivors Insurance Trust Fund is set to run dry by 2032. At that point, the program will still have incoming payroll tax revenue that it can use to pay benefits, but it won’t be enough to pay those benefits in full.
Image source: Getty Images.
If lawmakers fail to shore up the program’s finances, Social Security recipients could be looking at a 22% benefit cut. While that’s not something to panic about off the bat, it’s important to be mindful of the potential effect.
Focus on what you can control
Let’s be clear about one thing. This isn’t the first time Social Security has faced benefit cuts in its history.
Lawmakers have managed to stave off benefit cuts in the past, so chances are they’ll be able to do the same thing again between now and 2032. But it’s important to prepare for Social Security cuts in case Congress is not successful in preventing them.
The extent to which you might need to pivot will depend on how reliant you expect to be on Social Security once you stop working.
If you’re on track to accumulate a few million dollars in savings, Social Security may be extra money for you, for the most part. In that case, you may not need to do very much.
If you’re behind on savings or expect to get half your retirement income or more from Social Security, then you may need to alter some plans. That could mean delaying retirement to boost savings, working part-time during retirement, or waiting to sign up for Social Security.
You’re entitled to your monthly Social Security benefits without a reduction once you reach full retirement age, which is 67 if you were born in 1960 or later. But for each year you wait, until you turn 70, your benefits get an 8% boost.
Be realistic and hope for the best
Social Security’s future remains uncertain, but you don’t have to let that ruin your retirement plans. You may, however, have to adapt if you’re counting on those benefits to provide a big portion of your income.
As we get closer to 2032, there will hopefully be more information on what lawmakers are doing to prevent benefit cuts. But regardless of what happens with benefits, it’s important to build a resilient plan that allows for a substantial cut, just in case that ends up being reality.
