Many seniors today rely heavily on Social Security to make ends meet as retirees. Some even use their benefits as their only income source in the absence of savings. But will you have the luxury of doing the same?
In a recent Transamerica survey, 37% of respondents cited a reduction of Social Security payments as a major retirement fear. But are their concerns spot on or overblown?
Benefit cuts are a real possibility
If you're worried about getting less money from Social Security than you'd normally be entitled to based on your earnings history, you should be. The program's trust funds are expected to be depleted as early as 2035, and once that happens, benefit cuts could be on the table.
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The operative word here, however, is "could." While benefit cuts are certainly a possibility, they're not a given. And lawmakers are no doubt invested in preventing them for one big reason: They don't want a widespread senior poverty crisis on their hands.
As it is, many seniors who live mostly or solely on Social Security have to resort to drastic measures to stretch those benefits, like cutting pills in half or skipping medication doses because of cost. If benefits were to be slashed, it could drive many seniors into poverty and spur a massive health crisis. So the reality is that while benefit cuts might seem inevitable at this point, lawmakers might find a way to avoid them simply because they have to. What that looks like, however, is unclear.
There are different proposals floating around to shore up Social Security's finances. Some involve imposing higher taxes on the wealthy. Others involve raising the Social Security tax rate on all workers. Lawmakers clearly haven't quite figured things out yet. But they're going to have to commit to a solution pretty soon, seeing as how the clock toward that trust fund depletion date is ticking down.
Don't plan to retire on Social Security alone
Social Security cuts may be avoidable. But that doesn't mean retiring on those benefits alone is a good idea for you.
In fact, frankly, it's an awful one. Those benefits, without a reduction, will generally replace about 40% of your preretirement wages if you're an average earner. Most seniors need more income than that to live comfortably.
Even if you're willing to live frugally in retirement, you may not manage to get by on a 60% pay cut. So make an effort to build yourself a nest egg, even if it means starting out small and ramping up your contributions as you're able to. In other words, save 2% of your salary this year if that's all you can do. But boost that to 3% next year, and 4% the year after that.
The cost of being retired is only like to grow with inflation. And the cost of healthcare -- a large expense for many retirees -- has been rising rapidly for years. You'll want income outside of Social Security to cover your many expenses as a senior, whether benefit cuts wind up happening or not.
