Many seniors today rely on Social Security to pay their bills in retirement. But the program is facing its share of financial challenges, and those could come to a head in a little over a decade.
In fact, a good 64% of workers today fear that Social Security won't be available to them throughout their retirement, according to a recent survey by Principal. If you have similar concerns, here's what you need to do.
Image source: Getty Images.
Benefits aren't going away
There are rumors that Social Security is on the verge of going bankrupt and disappearing, but that's not the case at all. What may happen at some point in the not-so-distant future is that benefit cuts are implemented to make up for an impending revenue shortfall. But even in that scenario, the program would still manage to pay out the bulk of its scheduled benefits.
As such, there's no need to fear that Social Security will pay you nothing during retirement, or start paying you a benefit but stop that practice down the line. Your monthly benefit may end up being smaller if cuts come to be, but even if Social Security slashes payments by 20% to 25%, you'd still get the bulk of your money. So you can rest easy knowing that.
You'll need income outside of Social Security
There's a chance Social Security won't have to reduce benefits at all. If lawmakers come up with a way to pump more money into the program, Social Security might manage to keep up with scheduled benefits.
But even if that were to happen, it's still a bad idea to assume you'll manage to cover all of your senior living costs on Social Security alone. If you're an average wage earner, you can expect your monthly retirement benefit to replace 40% of your income. But most seniors need roughly twice that much income to live comfortably and cover the ever-rising cost of healthcare.
As such, while you don't need to lose sleep over the idea of Social Security disappearing in your lifetime, you also shouldn't rely on those benefits too heavily. Instead, you should make an effort to build a nest egg of your own so you have additional income to fall back on.
Let's say retirement is 30 years away and you've yet to set aside a dime for that purpose. If you start saving $500 a month now and do so over the next three decades, you'll wind up with a nest egg worth about $680,000 if your investments generate an average annual 8% return. That's a few percentage points below the stock market's average, which makes it a reasonable assumption to work with if you're looking at a 30-year savings window.
We don't know exactly what the future holds for Social Security. But what's clear right now is that planning to live on those benefits alone isn't a wise idea. And the more of a nest egg you build yourself, the less you'll have to worry about the path Social Security ultimately takes.
