Social Security is in a bit of a pickle, to put things mildly. In the coming years, the program is expected to owe more money in benefits than what it collects in payroll tax revenue, which is its main source of funding. And the reason largely has to do with baby boomers making a mass workforce exodus with too few workers coming in to replace them.
Social Security has trust funds it can tap to make up for that revenue shortfall. But once those trust funds run dry, benefit cuts will be on the table. And that might happen sooner than anyone wants.
The most recent projection for the depletion of Social Security's trust funds has them running out of money by 2034. This means that Social Security cuts could end up happening in roughly a decade.
That's a scary thought. But if you're still working, there's one key move you can make to compensate for benefit cuts and avoid getting hurt by them.
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Extra savings buys you more protection
Benefit cuts or not, you should expect to need money on top of Social Security to pay your bills in retirement. But since benefit cuts are not a distinct possibility, it's best to safeguard yourself by boosting your savings and contributing beyond what you're setting aside today. That could mean funding your IRA or 401(k) plan to the tune of $400 a month instead of $300, or $300 a month instead of $250. Every little bit helps.
You may also want to consider postponing retirement in light of Social Security cuts, as doing so might help financially in two ways. First, it might allow you to build more savings and leave your existing cash reserves alone for longer. But also, it might put you in a position where you're able to delay your Social Security filing past full retirement age, which is currently 67 for anyone born in 1960 or later.
For each year you delay your filing beyond that point, your benefits will get a permanent 8% boost. So even if benefits are cut, you have the potential to make up for that by securing an increase.
Are Social Security cuts a given?
Absolutely not. Lawmakers are well aware that cutting benefits has the potential to spur a widespread poverty crisis among retirees.
Remember, if you still have many working years ahead of you, you can make up for Social Security cuts by boosting your savings. Retired workers can't go back in time and do the same.
Many seniors today get most of their income from Social Security. Some even rely on the program to provide all of their income. So ideally, lawmakers will manage to find a way to prevent those cuts from happening.
But that's also not something anyone should bank on. So if you're in a position to be able to save more in the years leading up to retirement, do so. If benefits aren't cut, you'll just plain have more money. That's not a negative thing at all.
