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Is Social Security Really Going Broke?

By Maurie Backman – Sep 18, 2021 at 5:18AM

Key Points

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Is the program's impending financial doom just a rumor, or reality?

Millions of seniors rely heavily on Social Security to make ends meet. Whether that's a good idea is another story.

Social Security will only replace about 40% of the average worker's pre-retirement income. And most seniors need about twice that much money to maintain a decent standard of living.

Of course, there's wiggle room with that formula. Higher earners who downgrade to a frugal retirement lifestyle might manage on less than 80% of their previous earnings. But for the most part, it's fair to say that seniors shouldn't expect to sustain themselves on Social Security alone.

Two people looking at documents

Image source: Getty Images.

This is especially true given the financial woes the program is currently facing. In fact, the program is on such shaky financial ground that many people wonder whether it'll even be there for them once they retire.

So what's the real deal? Is Social Security actually going broke? Or can the program be saved?

Here's the scoop

Social Security gets most of its revenue from payroll taxes. You'd think that would be a reliable income stream, but in the coming years, many baby boomers will be retiring, and the program will, in turn, see its revenue decline. At the same time, those retiring workers will start drawing their benefits, leaving Social Security with a massive shortfall.

The program thankfully has trust funds it can tap to keep up with scheduled benefits for about 13 years. But come 2034, those cash reserves are expected to run dry, or so say the program's Trustees. And once that happens, benefit cuts may be on the table.

Obviously, reduced Social Security benefits aren't ideal. But to be clear, that's really the worst-case scenario we're talking about right now.

As long as we still have a workforce, Social Security can continue to collect payroll taxes, which should fund the program and allow it to pay retirement benefits to some degree. While the program is facing financial challenges, it's not going broke completely.

Should you count on Social Security?

Social Security may not be running out of money, but that doesn't mean you should plan to fall back on it in the absence of other savings. For one thing, benefit cuts are a real possibility, and they could be substantial.

Additionally, you may not be able to live on just 40% (or less, when we account for benefit cuts) of the income you're used to. So it pays to save on your own for retirement so you're able to supplement your Social Security benefits, no matter what they amount to.

If your employer offers a 401(k) plan, sign up and start having contributions deducted from your earnings. You can contribute up to $19,500 this year if you're under 50, or up to $26,000 if you're 50 or older.

Otherwise, open an IRA and put money into it regularly. This year's contribution limits stand at $6,000 for workers under 50 and $7,000 for those 50 and older.

It's good to have the scoop on Social Security. But don't let the fact that it isn't going broke stop you from taking savings matters into your own hands.

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