Millions of older Americans today collect a monthly benefit from Social Security. And in the absence of that income, many would no doubt struggle financially.
But Social Security is facing some financial challenges in the coming years. And if lawmakers don't find a way to resolve them, benefit cuts could be on the table.
Such is the fear of 84% of Americans aged 60 to 65 recently surveyed by Nationwide. While inflation is the No. 1 concern among people that age, Social Security ranks closely behind.
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But are older Americans' Social Security concerns overblown? Or are benefit cuts a reality retirees should be bracing for?
It's too soon to know
Social Security's primary source of revenue is the money it collects in payroll taxes. Since the country has and plans to have an active labor force, Social Security is not in danger of going away entirely. However, as baby boomers continue to retire and fewer workers come in to replace them, the program's primary revenue source is apt to shrink.
Now, Social Security has cash reserves known as trust funds it can tap to keep up with benefit payments for a while. But once those trust funds run out of money, the program may have to cut benefits.
Recent projections call for cuts in the ballpark of 20%. And recent estimates also have Social Security's trust funds running dry by 2034. So, all told, benefit cuts could be a mere 10 years away.
As such, it's understandable that older Americans would be concerned. But one thing to know is that this isn't the first time Social Security has faced the possibility of benefit cuts. And in the past, lawmakers have managed to avoid them. So, solutions may be introduced in the coming years that could once again stave off those cuts.
However, because it's hard to predict at this point what will happen with Social Security, the best thing to do is save independently to make up for potential benefit cuts. If you're only partway through your career, you have ample opportunity to do so.
The same may hold true even if you're in the 60 to 65 cohort. While it's not uncommon for people in that age range to be retired already, if you're still working, take advantage.
Max out your IRA or 401(k) plan, including catch-up contributions, and put any money you're able to save beyond your retirement plan's annual limit into another account earmarked for retirement. Even a regular old savings account will do, and right now, the interest rate you're privy to may be fairly generous.
Hope for the best, but be prepared
Lawmakers still have some time to prevent Social Security cuts. But the clock is also ticking down.
In the coming years, we could see changes to the program that help shore up its finances. But until there's concrete information, it's best to do what you can to compensate for benefits cuts. That generally means saving to the best of your ability, whether you're on the verge of retirement or nowhere close.
