Millions of seniors today count on their monthly Social Security benefits to stay afloat financially. And chances are, once you retire, you'll end up doing the same.
But the problem is that the Social Security benefit you think you're in line for may not be the amount you ultimately collect. For one thing, if you file for benefits early, you'll shrink them in the process. But even if you make a point to wait until full retirement age to claim Social Security, you might end up with a smaller benefit due to no fault of your own.
Image source: Getty Images.
Benefit cuts could become reality
Social Security is facing a funding shortfall. In the coming years, the program expects to owe more in scheduled benefits than it collects in revenue.
Social Security has trust funds it can tap for about a decade to keep up with scheduled benefits without having to resort to cuts. But once those cash reserves run dry, reduced benefits are a distinct possibility.
Meanwhile, as of now, you can expect Social Security to replace about 40% of your preretirement wages if you're an average earner. But if benefit cuts come into play, the program will provide you with even less replacement income. And that could make it very difficult to pay your bills as a senior.
That's why it's so important to ramp up your savings efforts. Increasing your savings rate could spell the difference between ending up cash-strapped in retirement and managing just fine, even if Social Security is slashed substantially.
Do your best to save more
Maybe you're saving $300 a month for retirement right now and are on track to close out your career with a decent-sized nest egg because of that. Carving out more money than that for savings purposes may not be easy. But given that Social Security cuts are a distinct possibility, it's something you should push yourself to do.
Let's say you've just started building your nest egg and are socking away $300 a month for retirement. In 30 years, you should have about $408,000 if your investments generate an average annual 8% return, which is a bit below the stock market's average.
But if you're able to boost your monthly IRA or 401(k) plan contributions to $400 a month, you might retire with closer to $544,000 instead, assuming that same savings window and return. That could help compensate nicely for Social Security cuts.
Another option to consider? Extending your career. If you're able to work a few extra years, you'll have all the more opportunity to fund and grow your nest egg. Just as importantly, you might be able to sign up for Social Security at a later age, thereby scoring a higher benefit than what you'd get at full retirement age (even when accounting for potential cuts).
Social Security cuts are not written in stone. But at this point, they're looking more and more likely by the day. So rather than resign yourself to a financially stressful retirement, do what you can to boost your savings rate to make up for a smaller monthly benefit later on.
