Social Security is not going away. That's an important piece of information to put out there, because a lot of people are convinced that those benefits won't be around by the time their retirement rolls around.
That said, it's important to recognize that Social Security cuts are a likely scenario, albeit not a guaranteed one. In a recent interview, Social Security's chief actuary, Steve Goss, stated point blank that if the program's combined trust funds become depleted by 2034, benefits will likely be cut to the tune of about 20%.
Clearly, benefit cuts of any nature are far from ideal. But they may be happening. So if you're worried about how they might impact your retirement, here are some steps you can take to compensate.
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1. Work on building up a lot of savings
If your boss were to warn you that in a year or two, you're going to be looking at a 20% pay cut, would you continue to spend money as usual, or would you start husting to build savings? You'd probably do the latter. Well, it pays to adopt a similar approach to Social Security.
If you still have a good number of years in the workforce left before you're set to retire, make every effort to ramp up your savings. Cut back on other near-term bills and pump more money into your IRA or 401(k) plan. A larger nest egg could take the place of some of the income you may have been expecting Social Security to provide you with.
2. Reconsider your retirement lifestyle
A retirement that involves an expensive home in a costly city may not be feasible in the aftermath of Social Security cuts. Granted, if that's the sort of existence you're anticipating, it may be that you have every intention of bringing a lot of savings with you into retirement. But you might still need to reset some expectations.
Take some time to research different parts of the country where a smaller monthly Social Security check may go further. And also, think about some of the expenses you may be willing to cut back on. A less spacious home could free up a lot of cash for you, allowing you to spend more on leisure and other important things.
3. Plan to continue working
Retiring does not automatically mean having to give up a paycheck completely. If you're willing to hold down a job later in life, it could be enough to make up for whatever hit your Social Security benefits take.
Also, do remember that by holding down a job in retirement, you're keeping yourself busy without having to spend money (other than incidental costs related to doing that work, like paying to fuel your car). So that, too, could be instrumental in helping you get by on a lower monthly benefit.
Social Security is not guaranteed to have to cut benefits. The program has faced financial crunches in the past, and lawmakers have managed to find ways to prevent benefit cuts. So ideally, they'll be able to do the same thing in 2034. But in case that doesn't happen, you should know that there are ways to salvage your retirement and avoid being miserable in light of a notable reduction in your Social Security income.
