Preparing for retirement is difficult enough as it is, but with Social Security continuing to face financial challenges, many workers are concerned that it could put their senior years in jeopardy.
To be clear, Social Security is not going bankrupt. However, its two trust funds are expected to be depleted by 2034, according to the most recent estimates from the Social Security Administration (SSA) Board of Trustees.
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When that happens, the SSA will need to rely primarily on payroll taxes to fund benefits. And that income will only be enough to cover around 80% of projected payments. In other words, if Congress doesn't find a solution before 2034, benefits could be cut by up to 20%.
If you're expecting to retire soon, that could throw a wrench into your plans. Fortunately, there are a few moves you can make right now to reduce the impact of potential benefit cuts.
1. Start beefing up your savings
Perhaps the best way to reduce your dependency on Social Security is to save more in your retirement fund. While that's often easier said than done, even relatively small amounts can go a long way when you invest.
For example, say you can afford to boost your savings by $300 per month, and your investments are earning a modest 7% average annual return. At that rate, you would accumulate close to $50,000 within just 10 years.
The average retiree collects around $22,000 per year from Social Security, so an extra $50,000 in savings can make up more than two years' worth of benefits.
2. Aim for a bigger benefit amount
If it's not possible to invest more per month, you might be able to increase the size of your monthly payments.
The SSA calculates your benefits by taking an average of your income throughout the 35 highest-earning years of your career. That number is then adjusted for inflation, and the result is your basic benefit amount -- or the amount you'll collect at your full retirement age (FRA).
To earn as much as possible, be sure you work a full 35 years before you begin claiming benefits. Otherwise, you'll have zeros added to your average to account for the time you weren't working, which will result in a lower payment.
Boosting your income will also increase your payments, and working more than 35 years can help as well. Chances are you're earning a higher income now than you were earlier in your career. Because the SSA only includes your 35 highest-earning years, working longer now while you have a higher income can result in a larger earnings average -- and a bigger benefit.
3. Consider delaying benefits
One of the most dramatic ways to increase your monthly payments is to hold off on filing for Social Security.
Your basic benefit amount (the amount you'll receive based on your work record) is how much you'll collect at your FRA -- which is age 67 for anyone born in 1960 or later. By filing as early as possible at 62, your benefits will be permanently reduced by up to 30%.
But if you delay benefits until age 70, you'll receive your basic benefit amount plus a bonus of at least 24% per month. That might not sound like much, but it can add up substantially.
For example, say you have an FRA of 67, and by claiming at that age, you would receive $1,800 per month (which is roughly the average retirement benefit as of May 2023). File at 62, and your benefit will be reduced to $1,260 per month. But if you wait until age 70, you'll receive a 24% bonus for a total of $2,232 per month.
In other words, the difference between filing at 62 and waiting until age 70 amounts to $972 per month in this example. If benefits are cut in the future, that kind of money could go a long way.
Are Social Security cuts coming?
In short, nobody knows. Lawmakers have been debating various solutions, but they haven't managed to reach any agreements yet.
Between now and 2034, the SSA will continue paying out benefits in full as it dips further into its trust funds. But Congress will need to come up with some way to solve the problem in the next decade before cuts become a reality.
While there's nothing you can do to prevent potential cuts, you can take steps to protect yourself. By boosting your savings and finding ways to increase your benefits, you'll be better prepared no matter what happens with Social Security.
