While many seniors rely heavily on Social Security to make ends meet, a large number of people have lost faith in the program. A good 73% of working Americans think Social Security won't be there for them in retirement, according to the 21st Annual Transamerica Retirement Survey. But those who think that way may be blowing the current situation out of proportion.
What's happening with Social Security?
The Social Security Trustees recently released their long-awaited update on the state of the program's finances, and the news wasn't exactly wonderful. It also wasn't shocking.
It's not a secret that in the coming years, Social Security will owe more money in benefits than it collects in revenue as baby boomers exit the workforce in droves and too few replacement workers come in to make up for it. Social Security will, in that scenario, have to tap its trust funds to keep up with scheduled benefits. But once those trust funds run dry, benefit cuts will be on the table.
Before the coronavirus crisis began, the Social Security Trustees estimated that the program's trust funds would run out of money by 2035. Now they're saying that milestone will arrive a year sooner due to the widespread unemployment crisis the pandemic triggered. Once those trust funds are depleted, Social Security recipients could be looking at a 22% reduction to their benefits. That applies to current and future beneficiaries alike.
Interestingly, the aforementioned Transamerica survey was compiled and released before the Trustees put out their latest report. But if anything, the number of workers who now think Social Security won't be there for them in retirement could be higher.
It's not all doom and gloom
Clearly, Social Security benefit cuts are not a desirable thing. But there's also a big difference between Social Security going broke and the program having to cut benefits. The former is not on the table, which means that current and future retirees will still get some amount of money on a monthly basis.
Furthermore, though benefit cuts are possible, they're not set in stone. Reducing benefits could put millions of seniors in a very precarious financial situation, so lawmakers are apt to try to figure out ways to avoid that scenario.
Of course, current retirees may have few options for compensating for Social Security benefit cuts. But if you're still working, you should be a bit less worried.
For one thing, you may have plenty of years ahead of you to boost your personal retirement savings so you're less reliant on Social Security during your senior years. You may also have the option to delay your filing, which could give you a larger monthly benefit for life.
While the latest news on the Social Security front may not be something to celebrate, fears about the program going away are completely pretty overblown. As long as we continue taxing workers' income for Social Security purposes, seniors will be able to collect benefits to some degree. And given the consequences of cutting benefits, lawmakers are pretty invested in finding solutions to prevent that from happening anytime soon.