If you're worried that Social Security won't be there for you in retirement, you're not alone. But let's start off this discussion with a bit of good news.
Social Security is actually not on the brink of going bankrupt and disappearing. Because the program is primarily funded by payroll tax revenue, as long as there's an active labor force, Social Security can continue to operate.
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However, in the coming years, the program will owe more money in scheduled benefits than it collects via payroll taxes. And that's due to the massive number of older workers who are expected to retire in the coming years and start filing benefit claims.
Social Security can tap its trust funds for the time being to keep up with its financial obligations. But once those trust funds run dry, benefit cuts will be on the table. And that could happen in about a decade's time.
That's why it's so important to brace for benefit cuts -- and have a game plan in case they happen. Here are some options to look at in that regard.
1. Boost your nest egg
The more savings you bring with you into retirement, the less reliant on Social Security you'll have to be. Unfortunately, Northwestern Mutual puts the average retirement savings balance among baby boomers today at $120,300. That's a rather modest sum over what could be a 20- or 30-year period. However, with careful planning, you can set yourself up to retire with way more.
Let's say you're in your 30s and have another three and a half decades of work ahead of you. If, from this point onward, you sock away $500 a month in a retirement account whose investments generate an average annual 8% return, which is a bit below the stock market's average, you could end up with just over $1 million in savings in 35 years. A nest egg like that could give you plenty of cash to access on a yearly basis in case your monthly Social Security benefit shrinks.
2. Create a portfolio that pays you
Maybe you're closer to retirement and don't have tons of time to fund an IRA or 401(k). In that case, what you can do is set yourself up with investments that will continue to pay you on a regular basis.
Dividend stocks are a good example here. In addition to share price appreciation, you might benefit from ongoing dividend payments you can cash out and use as retirement income.
Municipal bonds might help you achieve a similar goal by paying you steady interest. And, they may be a less risky and therefore more palatable investment option than dividend stocks.
3. Plan to work part-time
Many people associate the start of retirement with the end of work. But thanks to the gig economy, it really doesn't have to be that way.
Find something you like to do with your time and figure out how to monetize it. If you're an avid gardener, you could sell your plants, herbs, and vegetables at local markets. If you love animals, you could become a part-time dog-walker or pet-sitter. There are numerous choices you can explore, and the more income you're able to earn, the less worrisome Social Security cuts are apt to be.
The idea of Social Security cuts may be scary. But if you come up with a backup plan, they may not end up being so problematic for you if they wind up happening.
