Social Security helps millions of seniors today keep up with their expenses and maintain a decent standard of living. And even though those benefits have been losing buying power for the past couple of decades, they're a crucial income source for retirees with limited savings.
But data released earlier this year paints a somewhat bleak picture about Social Security's future, and the gist of it is that an across-the-board reduction in benefits may be on the table in roughly 15 years. And that means one thing: Seniors who rely heavily on those benefits could be in trouble.
What's happening with Social Security?
Social Security gets its income from a few different sources -- payroll taxes, taxes on paid benefits, and investment revenue from its asset reserves. Any money that's not needed to pay immediate benefits goes into Social Security's trust funds, which can be tapped whenever the program faces a shortfall -- meaning, it owes more in benefits than it takes in. In the coming years, the program will need to dip into its trust funds as baby boomers exit the workforce at a faster pace than incoming workers.
But according to the latest Social Security Trustees report, the program's trust funds are expected to run dry by 2035. At that point, seniors may be looking at a 20% reduction in scheduled benefits unless Congress manages to intervene with a fix.
Of course, the good news is that Social Security is by no means in danger of completely going away. But losing 20% of benefits could prove catastrophic for seniors who get the bulk of their retirement income from Social Security.
Prepare for future cuts -- even though they may not happen
Let's be clear: It's in lawmakers' best interest to address Social Security's future shortfall rather than let millions of seniors slip below the poverty line. But we can't assume that will happen, so if you're a senior who's heavily reliant on Social Security, start making some lifestyle changes that could, in time, allow you to survive a 20% hit on your benefits.
For one thing, get on a tighter budget. That may not be easy if you're living frugally already, but if you comb through your current expenses, there are probably a few you can cut to some degree. And if that's not possible, you may need to consider relocating to a different part of the country, where the cost of living is generally cheaper.
Remember, you get to take your existing Social Security benefit wherever you go, which means that if you currently receive $1,500 a month and live in an expensive state, that money might go further in a state where housing, goods, and services are cheaper. But if you're going to move, be careful -- there are 13 states that tax Social Security benefits, and if that's your primary income source, that's something you'll want to avoid.
Another option? Look into working part-time. You can consult in your former field, turn a hobby into a money-making opportunity, or even start your own business to generate income.
It's too soon to know whether Social Security will actually end up cutting benefits in the future. Your best bet for now, therefore, is to have a backup plan in case that happens.