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There's no way I'm banking on those benefits to fund my retirement.
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Millions of seniors today receive benefits from Social Security. And for some people, those benefits are their sole or primary source of income.
I hope to take a different approach to retirement, and it involves building savings to cover my expenses and using Social Security as extra money only. Here's why I'm banking on my own nest egg much more so than Social Security.
Image source: Getty Images.
Social Security is not in danger of going away anytime soon, but benefit cuts are a distinct possibility.
In the coming years, Social Security anticipates that it will owe more in benefits than it collects in revenue. See, the program's main revenue source is the money it receives from payroll taxes. But as baby boomers retire in droves, that revenue source won't fund the program as much.
Social Security has trust funds it can tap to keep up with scheduled benefits for roughly another decade. But once those cash reserves run dry, benefit cuts are a distinct possibility. As such, I'd rather not depend too heavily on an income source that has the potential to shrink.
Each year, Social Security beneficiaries are eligible for a cost-of-living adjustment, or COLA. This year, seniors got their largest COLA in decades, and there's talk that next year's COLA will be even more generous.
But through the years, COLAs have done a poor job of helping seniors maintain their buying power. So far, that's been the case this year, as well. As such, I can't count on benefits that are more likely than not to erode my purchasing power throughout retirement.
Social Security is subject to a series of rules, but they're not set in stone. They could change in a manner that hurts me or others like me financially.
Right now, for example, anyone who pays enough tax into Social Security is entitled to a monthly benefit. But if the program's financial woes increase, lawmakers might choose to do means testing. That could mean that not everyone gets a Social Security benefit or the full benefit they'd normally be entitled to.
Furthermore, right now, my full retirement age for Social Security is 67. That's the age when I'm allowed to claim my benefits in full. But lawmakers could choose to raise full retirement age in an effort to help the program financially. And I don't want to land in a position where I'm forced to shift my retirement plans around due to circumstances outside my control.
There's no need to write off Social Security for retirement planning purposes. But you need to have a plan outside of Social Security in case benefits shrink or the program evolves in a less favorable way. That plan could just boil down to building yourself a solid nest egg so you're less reliant financially on Social Security once you stop working.