You may have heard rumors that Social Security is bankrupt and on the verge of disappearing completely. Well, it’s not true, so you can breathe a sigh of relief.
Yes, Social Security is facing revenue shortfalls. And the finances of this program are not so good. However, the program isn’t in danger of being completely deprecated, so it’s okay to put that concern out of your mind.
Nonetheless, it is clear that there will be social security cuts in the not too distant future. The reason for this is that the program expects to pay more benefits than income in the next few years as baby boomers retire sooner and payroll taxes pay less.
Social Security has a trust fund that can be utilized to maintain scheduled benefits for a period of time. However, if the benefits are exhausted, a reduction in benefits may be inevitable. And at this point, it looks like the program’s trust fund will be depleted by 2034.
This is obviously not the best news, but it’s nowhere near as dire as the idea of Social Security being completely abolished. But many workers are concerned about benefit cuts and what they could mean for them.
The bad news is that there may be nothing an individual can do to prevent Social Security cuts. But there is one very important move. can This is to ensure that these cuts do not upend your finances or ruin your retirement life.
solve the problem yourself
Lawmakers may find ways to block Social Security cuts. But it’s not something you can control.
What are you can However, every effort should be made to build a solid nest egg. That way, even if Social Security were to be cut, there would be more savings to make up for it.
You may be thinking, “But I can’t afford to increase the savings rate that much.” However, a small increase in your 401(k) or IRA contributions can make a big difference.
Suppose you start funding your retirement plan at age 30 and continue until age 67, the full Social Security retirement age. Also, let’s assume that you contributed $150 to your savings each month during that time.
If your invested savings yielded an average annual return of 8%, just below the stock market average, you would end up with about $365,000. That’s certainly a good amount.
But let’s see what happens if we increase the monthly contribution to $200. Suddenly you are considering retiring with about $487,000. $250 a month would be $609,000.
Now think about what spending $100 less per month would look like. You may have to cut back on some of the things you enjoy. But imagine retiring with $609,000 instead of $365,000. With $244,000 more to your name after you retire, you may find it much easier to deal with social security cuts.
The idea of social security cuts can be frustrating and frightening. But there’s absolutely no need to ruin your retirement life if you’ve planned and increased your savings rate accordingly.