Social Security provides critical benefits to countless seniors and disabled Americans, but despite the program's long-term standing, there has been talk in recent years of it running out of money. In fact, in a 2016 Transamerica survey, 77% of workers said they're worried about Social Security going bankrupt by the time they're set to retire.
But while the program isn't going broke (or going away), it does have its share of money problems -- not the least of which is the $1 billion it just lost to incorrect payments. A recent audit of the Social Security Administration confirmed that over the past decade, the agency paid $1 billion in benefits to recipients without valid Social Security numbers. Specifically, over 22,000 individuals received money they shouldn't have from the agency. Ouch.
But it gets worse. According to the Office of the Inspector General, which conducted the audit, unless the agency takes steps to improve its process for validating payments and vetting beneficiaries, it will likely lose $182.5 million every year to erroneous benefit payments. When it comes to Social Security, that's something you don't want to hear.
Just a drop in the bucket
While that $1 billion loss certainly hasn't helped matters, in reality, it's just a drop in the bucket in the grand scheme of Social Security's long-term financial woes. Since there are now more people leaving the workforce than entering it, the agency is struggling to keep up with scheduled benefits.
Thankfully, the program has trust funds it can tap when tax revenues aren't enough to cover its outgoing payments, and starting in 2019, that's what it will have to do. But those trust funds only have so much money, and according to the latest projections, they're scheduled to run out in 2034, at which point Social Security could face a whopping $11 trillion shortfall. To hear that the agency just blew through $1 billion in erroneous payments only adds insult to injury for those who are already concerned that they won't get their benefits down the line.
Although all of this clearly paints a pretty dire picture, the future of Social Security isn't totally bleak. Even once the program's trust funds are depleted, it should still have enough incoming tax revenue to pay about 79% of scheduled benefits. Not only that, but based on current projections, the program can continue paying benefits at that level until 2090.
That said, a large percentage of the current workforce is alarmingly behind on savings, with one out of every three workers having absolutely no savings at all. A 21% benefits cut could therefore be downright catastrophic to those without an independent means of financial support.
Don't bank on Social Security alone
While a $1 billion loss won't necessarily spell the end of Social Security, it's hardly good news, as the program really can't afford to be losing money. But even if Congress steps in and fashions a solution that enables Social Security to continue paying 100% of scheduled benefits on a long-term basis, those who rely too heavily on those benefits are most likely headed for trouble.
Even in a best-case scenario, Social Security is only designed to replace about 40% of the average worker's pre-retirement income. Most people, however, need 70% to 80% of their previous income to cover their senior living costs, and many retirees require even more. Yet Transamerica reports that 34% of baby boomers expect Social Security to serve as their primary source of income once they retire.
If you've yet to start saving independently for retirement, it's time to change your ways while you still have an opportunity to do so. Anyone under 50 can contribute up to $5,500 a year to an IRA and $18,000 a year to a 401(k). If you're 50 or older, you're allowed to make catch-up contributions that raise these limits to $6,500 and $24,000, respectively.
Even if you're planning to retire within a decade, maxing out on either type of account could work wonders for your savings. Socking away $6,500 a year over eight years, for example, will leave you with an additional $62,000 of retirement income if your investments generate a relatively conservative 5% average annual return. Maxing out a 401(k) during that same timeframe, meanwhile, will leave you with a far more impressive $229,000.
No matter what steps you take to ramp up your savings, don't make the mistake of thinking that Social Security will be enough to cover your bills as a senior. Though the program is by no means set to disappear, it clearly has its share of financial troubles to grapple with, and given its somewhat uncertain future, it's essential that you have a backup plan.