Social Security benefits could go through a major change in six years.
Current and future workers could be hurt by the change.
Saving more money now could help ensure you’re prepared for changes to Social Security.
Have You read The New Report Shaking Up Retirement Plans? Americans are answering three questions and many are realizing they can retire earlier than expected.
Have You read The New Report Shaking Up Retirement Plans? Americans are answering three questions and many are realizing they can retire earlier than expected.
Social Security is a crucial income source for most retirees, and it has always been a reliable source of funds as well. In fact, since Social Security is guaranteed to last for the entirety of your life and is protected against inflation, it’s been viewed as one of the best forms of income for seniors who no longer collect a paycheck.
Unfortunately, Social Security is facing a major change in just six years, and both current and future retirees need to start preparing for that change. Here’s what’s coming down the pipeline for Social Security, along with some tips on why it’s important to start saving for it.
The major Social Security change that is coming is not good news for anyone. Unless something changes, Social Security retirees are going to face substantial benefit cuts as soon as 2032.
That’s based on an analysis from the Congressional Budget Office, which projected that the Old Age and Survivors Insurance (OASI) trust fund is expected to be exhausted at that time. The OASI trust fund is used to help pay Social Security benefits to seniors so they can receive all of the promised money they need to help fund their retirement.
The most recent Social Security Trustees’ report had actually projected the trust fund would be exhausted in 2033, but the CBO revised that estimate due to recent tax changes made by the One Big Beautiful Bill Act. The OBBBA put new tax rules in place for Social Security retirees that will result in lower revenue collections on Social Security benefits. With Social Security collecting less tax money, the CBO now believes the trust fund is going to run out of money in just six years.
This doesn’t mean a complete end to benefits, but it does mean that a substantial automatic cut would need to occur. The trust fund can pay benefits from revenue collected from current workers even if the trust fund is empty, but that won’t be enough to provide all the promised payments. Retirees would be looking at around a 7% benefits cut in 2032, and a 28% cut from 2033 to 2036 if the current trendline continues.
This is obviously a very substantial reduction in monthly benefits, and one that not many people could easily absorb.
With Social Security’s trust fund potentially running out in just over half a decade, the time to start preparing is now. While there is a good chance Congress will try to act to stop benefit cuts, there’s a major shortfall to make up without some kind of reduction in benefits (like pushing full retirement age later).
If a cut is going to happen in any form, having more money saved to supplement benefits could make coping with the benefits reduction easier. Current workers are in the best position to prepare for this possibility, since they can increase their retirement savings efforts now and hopefully end up with a large enough nest egg to still have a comfortable retirement even with less Social Security.
However, even current retirees need to be prepared for potential changes or disruptions in the benefits schedule, and saving an emergency fund while maintaining a careful budget can be a good way to do that.
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Many are even learning they can retire earlier than expected.
If you’re thinking about retiring or know someone who is, take 5 minutes to learn more here.
