For years, seniors have routinely relied on Social Security to cover their retirement costs. And according to a 2021 report from the Social Security Administration, as of 2015, 37% of male recipients and 42% of female recipients counted on those benefits to provide 50% or more of their senior income.
But Social Security is facing its share of financial challenges that could come to a head in the not-so-distant future. And not surprisingly, many current recipients are worried about their benefits being cut, while many workers fear they won't end up being able to collect Social Security at all.
So just how worried should you be about Social Security? Well, it depends what stage of life you're at and how willing you are to make changes to your plans.
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Things aren't looking great, but all isn't lost
In the coming years, Social Security expects to owe more money in benefits than it collects in revenue. To make up that shortfall, it can access money from its trust funds until those reserves are depleted. Recent projections, however, show that happening in a little more than a decade. And at that point, substantial benefit cuts could come down the pike.
So where does that leave seniors who get most of their income from Social Security? In a not-so-great place, unfortunately.
Retirees in that boat may need to start rethinking their expenses and lifestyle to gear up for that possibility. For some, that could mean downsizing. For others, it could mean going back to work.
Things aren't as bleak, however, for those who still have a nice number of working years ahead of them. If you fall into that category, you have an opportunity to build yourself a solid nest egg and make up for benefit cuts.
In fact, let's say you're 40 years old and have yet to put so much as a dime into your IRA or 401(k) plan. If you spend the next 27 years socking away $500 a month, and you invest your savings at an average annual 8% return (which is a bit below the stock market's average return), you'll end up with $524,000. That's a nice chunk of money you can use to supplement your Social Security benefits -- and compensate for them being lower than what you were hoping for.
Adjusting your retirement plans is another option to look at, and it's something near-retirees without a lot of savings may want to do. Extending your career gives you a solid opportunity to pump more money into your savings while leaving your existing funds alone to grow. Plus, you can consider several years of partial retirement – a setup that perhaps has you working 20 hours at a week at your job before you leave it behind completely.
While Social Security is not in danger of going away completely, benefit cuts could really hurt seniors who rely heavily on that income. And, they could hurt future retirees who aren't prepared with adequate savings. But if you're still working, the good news is that you've been warned about where Social Security may be headed. And now, rather than sit back and stress, you can take steps to do something about it.
