Social Security has a funding problem on its hands. In the coming years, the program is expected to owe more in benefits than it collects in revenue. And while Social Security does have trust funds it can tap to make up that gap, once those cash reserves run dry, benefit cuts could be on the table -- and pretty soon.
Of course, it's in lawmakers' best interest to step up and find a way to prevent benefit cuts from happening. If seniors were to lose a large chunk of their Social Security income, it could be enough to fuel a widespread poverty crisis.
But at this point, Social Security is only a little more than a decade away from depleting its trust funds as per its Trustees' latest projection. And as of now, lawmakers don't have a concrete plan for preventing benefit cuts.
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As such, it's important to brace for the fact that those cuts may be coming. And if you're nearing retirement, here are a few things you can do to compensate.
1. Rethink your retirement spending
You may have plans for your senior years that require a certain amount of money. Now may be the time to rethink them. Set some priorities so you're able to make the most of a lower amount of retirement income, and don't commit to larger long-term expenses that might become unaffordable down the line due to Social Security cuts (for example, a larger condo with higher HOA fees).
2. Boost your savings
If you still have a little time in the workforce ahead of you, use it to your advantage by maxing out your IRA or 401(k). Both plans will see their annual contribution limits increase in 2023, so you have a prime opportunity to sock away added funds for your senior years.
3. Delay your Social Security filing
Social Security benefit cuts may be inevitable. But you can snag a higher monthly benefit to start with by postponing your filing past full retirement age (which is either 66, 67, or somewhere in between, depending on the year you were born).
Once you delay your filing by even a month, you'll snag a higher Social Security benefit for life. And while this incentive runs out at age 70, you have an opportunity to boost your monthly benefit by 24% or more. If you do so and benefits are cut, you'll be starting from a higher baseline.
Now you may need to be willing to work a little longer to delay your benefits claim until age 70. But doing so could also give you a chance to grow your nest egg, so it's really a win-win.
The idea of Social Security cuts may be scary. But it's also the reality current and future retirees have to face. Ideally, lawmakers will manage to come up with a way to fix Social Security's funding shortfall and prevent benefits from being slashed. But in the absence of that, it's important to have a plan to make up for lower benefits in case that's how things end up playing out.
