The Social Security Administration recently released its latest report on the status of future benefits, and it has some soon-to-be retirees concerned.
Benefit cuts may be coming sooner than expected as a result of the COVID-19 pandemic and its impact on the Social Security trust funds. If you're already retired or are planning on retiring within the next decade or so, should you be worried about these potential cuts? Here's what you need to know.
1. Benefits could be reduced by 2034
The Social Security Administration (SSA) relies primarily on payroll taxes to fund benefits, but over the last few years, those taxes haven't been enough to cover 100% of payments. With so many baby boomers retiring at the same time and older retirees living longer, the SSA has been paying out more money in benefits than it's receiving in taxes.
As a result, the SSA has dipped into its trust funds to cover the deficit. Sooner or later those trust funds will be depleted, though, and experts predict that time will come by 2034.
That's one year sooner than previously estimated, partly due to the fact that so many workers lost their jobs during the pandemic. Mass layoffs meant there was less money coming in from taxes, so the SSA had to pull more than expected from the trust funds.
2. Social Security is not going away entirely
If Congress doesn't do anything to solve the problem before 2034, retirees could see their monthly checks reduced.
The good news is that benefits will not be going away entirely. Even if there's no solution by 2034 and the trust funds are depleted, there will still be money from payroll taxes that can fund benefits. According to the SSA's latest projections, in 2034 there will be enough money to pay around 78% of scheduled benefits.
What does that mean for you? While benefits may be cut by roughly 22%, you'll still receive at least some money from Social Security. As long as workers continue paying payroll taxes, your benefits won't go away completely.
3. There are ways to boost your benefit amount
Benefit cuts are discouraging, especially if your retirement savings are falling short. However, there are a few tricks to boost your monthly payments, which can be a smart idea just in case benefits are reduced.
First, make sure you've worked a full 35 years before you file for Social Security. The SSA takes an average of your income over the 35 highest-earning years of your career to calculate your basic benefit amount. The longer you work (and the higher your income during that time), the more you'll receive each month.
You can also consider delaying benefits to earn larger payments. Every month you wait past age 62 to file for Social Security, the more you can earn. By delaying until age 70, you could receive your full benefit amount plus up to 32% extra every month. If your checks are cut in the future, this boost in benefits could go a long way.
Nobody knows for sure what the future holds for Social Security, and there's a good chance Congress will come up with some type of solution before 2034. But it's never a bad idea to figure out a strategy now so that you're prepared no matter what happens.