Social Security benefits can make or break retirement for many older adults, as many retirees rely on their monthly checks for some or all of their income.
The Social Security Administration (SSA) recently released its latest Board of Trustees report, which includes information about the future of the program -- and whether there might be benefit cuts on the horizon. Here's what you need to know.
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1. Benefits could be reduced by 2034
Social Security relies on payroll taxes to fund benefits, but in recent years, there's been more money flowing out of the system in benefits than coming in from taxes. As a result, the Social Security Administration has been dipping into its trust funds to make up the difference.
However, those funds are expected to be depleted by 2034. At that point, there will only be enough cash to cover around 77% of projected benefits. In other words, benefits could be cut by up to 23% by 2034.
2. Social Security isn't going away completely
While that may sound bleak, the good news is that Social Security isn't going away entirely. One common misconception is that when the trust funds run out, the program will be cut completely.
In reality, though, as long as workers continue paying payroll taxes, there will always be at least some money to pay out in benefits. While your monthly checks could potentially be lower than expected, you'll still receive something.
Keep in mind, too, that benefit cuts will only happen if Congress can't figure out a solution before 2034. Many lawmakers have proposed ideas for how to solve this problem, and if Congress is able to come to a decision in the next decade or so, we may be able to avoid Social Security cuts altogether.
3. There are steps you can take to prepare
Nobody knows whether benefit cuts will actually happen or not, but that doesn't mean you can't prepare just in case.
One of the best things you can do right now is bulk up your retirement fund. The more you have in savings, the less you'll need to rely on Social Security. If benefits are reduced, then it won't have as much of an impact on your retirement.
You could also consider delaying Social Security. The longer you wait to begin claiming (up to age 70), the more you'll receive each month. If you were to wait until age 70 to file, you would receive your full benefit amount plus a bonus of up to 32% each month.
This boost is permanent, too. If benefits are eventually cut by 23%, that bonus you're getting by waiting to file could help cushion the blow.
Is Social Security a reliable source of income?
Social Security can have a major impact on your retirement, but it's not perfect. While it's not necessarily a bad thing to depend on your benefits to some extent in retirement, it's wise to have a backup plan in case your monthly checks are reduced.
As a general rule, Social Security benefits should only make up roughly 40% of your pre-retirement income. But the less you can depend on them, the less affected you'll be by potential benefit cuts.
Social Security benefits are a lifeline for many retirees, and staying informed about the program's future can be helpful. While nobody knows whether benefits will be cut or not, taking steps to prepare now can ensure you're ready no matter what happens.
