Social Security's Clock Keeps Running Down

This week, the Social Security Administration updated its annual Trustees' Report showcasing the health of that program's trust fund. As has been the unfortunate trend over the past few years, the update brought with it more bad news.

The combined retirement and disability trust funds are expected to be emptied by 2033 -- that's three years faster than what was expected from last year's report. Once that money is gone, the program will only be able to cover about 75% of its expected benefits from the tax revenues it collects.

That clock keeps ticking more quickly, and with a mere 21 years left until the fund is expected to be drained, it spells trouble for anyone depending on their complete Social Security benefits for retirement.

How much trouble is that?
On average, Social Security replaces about 40% of a person's income, and that's before the trust fund empties. If a quarter of those benefits are expected to evaporate in the absence of that trust fund, then the average benefit will drop to closer to 30% of that person's salary.

Unless you're able to stomach that large a hit to your income hitting once you've reached retirement and are no longer drawing a paycheck, a loss like that can really hurt.

With median household incomes around $50,000 a year, that hit represents about a $5,000 loss each year, or in the neighborhood of $100 a week. That's not exactly chump change.

Yet while that eventual pain barrels toward us like a runaway freight train, the news isn't all bleak. With 21 years to plan, there's still time to adapt before the problem sets in. Key things you can do include:

• Work longer. Each year you delay retirement is one more year your savings can compound and one less year your savings need to cover your costs of living. Also, as you delay retirement from age 62 through age 70, your promised monthly Social Security benefits will rise.
• Invest more. If you can sock away an additional $200 a month for the next 21 years and earn around 8% a year on your investments, you'll have around $130,000 extra stashed away. That's enough to cover the entire $5,000 loss, based on what's known as the 4% rule for retirement withdrawals.
• Live on less. If you can survive on that much less income, then doing nothing differently is a perfectly acceptable strategy. Of course, if you do nothing differently, this will be exactly where you'll end up once the trust fund runs dry.

With 21 years before the money runs out, you've still got time to plan. The longer you wait, though, the tougher it gets to do anything other than just accept that substantial cut.

What is your plan? Let us know in your comments below.