Millions of retired Americans collect a monthly benefit from Social Security. And many seniors rely on that income heavily to cover their essential expenses, from food to healthcare to shelter.
But Social Security is facing a serious financial shortfall in the coming years, and it's due to an anticipated mass exodus of baby boomers from the workforce. Since the program gets the bulk of its revenue from payroll taxes, fewer workers will mean less of that revenue. And that could result in benefit cuts once the Social Security trust funds run out of money.
It's therefore not so surprising to learn that 59% of working-age Americans worry that Social Security won't be there for them once they're ready to retire, according to data from Nationwide. But while benefit cuts are a possibility future retirees will need to brace for, Social Security is actually not in danger of going away completely.
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Benefits will still be payable
Although economists anticipate a shrinking workforce as baby boomers retire in droves and a smaller number of incoming workers enter the labor force to replace them, the U.S. can't function without a workforce. And as long as people continue to earn a paycheck, Social Security can continue to collect tax revenue.
That's precisely why the program isn't in danger of just disappearing. It's true that Social Security may have to cut benefits if lawmakers don't find ways to pump more revenue into it. But there's a big difference between benefit cuts and no benefits at all. And knowing that might help you sleep better at night.
Save for retirement so you don't have to worry
Hopefully, at this point, it's clear that you can look forward to some amount of income from Social Security once you retire. But the question is, how much?
Based on recent projections, Social Security should be able to pay around 80% of scheduled benefits once its trust funds run out of money. That percentage, however, could change in time.
But even without benefit cuts, one thing all workers should realize is that Social Security will only replace about 40% of an average earner's preretirement wages. Most retirees can't afford a 60% pay cut, despite some degree of shrinking expenses. So if you want to avoid financial worries in retirement, it's best to do what you can to save for your senior years independently by funding an IRA or 401(k) plan.
Even if you only manage to sock away $200 a month, if you do so over 30 years and your portfolio generates an average annual 8% return, which is a bit below the stock market's average, you'll end up with about $272,000 in savings. That, combined with whatever Social Security pays you, could make retirement a lot less financially stressful.
There's no need to worry that Social Security won't be there for you at all once you retire. But it's also a good idea to save for your senior years on your own, so you're not overly reliant on the benefits you'll eventually receive.
