Your benefits could face a notable reduction. Here’s how to prepare.
Social Security is not on the verge of going bankrupt. You may have heard rumors to the contrary, but it’s important not to buy into them.
That said, Social Security isn’t in the best place financially, either. In the coming years, the program expects to owe more in benefits than it collects in revenue.
Social Security can tap its trust funds to keep up with its financial obligations for a period of time. But once those trust funds run dry, benefit cuts will be a big possibility.
Unfortunately, this isn’t an event that’s 20 or 30 years in the making. Social Security’s trust funds are expected to be depleted as early as 2034, according to recent estimates. So it’s important to prepare accordingly. Here’s how.
1. Save, save, and save some more
If you’re already retired, you may not have too many options when it comes to building up your retirement savings. But if you’re still working, you have an opportunity to boost your nest egg so you’re less reliant on the income Social Security provides you with.
If you start saving for retirement at a young age, you may not even have to part with so much money on a monthly basis to build up a giant nest egg. Sock away $250 a month over 40 years, for example, and you’ll be sitting on $777,000, assuming your portfolio delivers an average annual 8% return, which is a bit below the stock market’s average.
Even if you’re pretty close to retirement, if you make an effort to boost your 401(k) or IRA contributions for a year or two, it could help. Remember, savers 50 and over can make catch-up contributions to these accounts, so you may be eligible to put in $30,500 or $8,000, respectively, this year alone.
2. Cut expenses
If you’re already retired and don’t have an opportunity to boost your cash reserves, your next best bet is to start cutting expenses. But don’t just plan to reduce your spending at the time Social Security cuts happen. Instead, start spending less now so you not only get used to that lifestyle, but also can potentially bank a little bit of extra emergency cash.
Some of the expenses you may want to look at are your larger ones, like housing and transportation. Downsizing could do a lot of good for your finances, as could unloading a car if it’s possible to manage without one.
3. Delay your Social Security filing
Social Security may be looking at benefit cuts. But if you delay your claim beyond full retirement age, you can boost your benefits by 8% a year in the process.
That incentive runs out at age 70. But if you’d generally be entitled to your complete monthly Social Security benefit at age 67, waiting until age 70 to file could give you a benefit that’s 24% higher. Even if benefits are slashed, you might end up with a pretty decent payday if you delay your filing.
Social Security cuts definitely aren’t a given. But they’re important to prepare for, just in case. These moves could help you do just that, whether you’re still working or are already a retiree who’s become reliant on those monthly benefit checks.
