There are many older Americans today who get the majority of their retirement income from their Social Security benefits. And people in this situation may be in for a financial shock in less than a decade.
According to the most recent report from the Social Security Trustees, the program's combined trust funds are expected to run dry in 2034. At that point, Social Security may be looking at a 19% broad reduction in benefits.
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For people who rely on every penny they get from Social Security to make ends meet, that could be a devastating loss of income. And while Social Security cuts aren't set in stone, it's important to recognize that they're a strong possibility.
Clearly, this isn't something I'm happy about. But I'm also not losing sleep over Social Security cuts. Instead, I'm aiming to set myself up so that they don't matter to me all that much.
How I hope to use Social Security in retirement
There are many retirees today who would not be able to cover their living expenses without Social Security. I, on the other hand, am making sacrifices today in the hopes that Social Security ends up being more of a minor retirement income source for me.
In fact, ideally, I want to save enough money so that I'm able to cover my essential bills without Social Security. That way, no matter what those benefits of mine amount to, they're really just extra.
Here are some specific steps I've taken to build up my retirement nest egg:
- I've said yes to extra work frequently through the years, even when I craved the downtime. Since that extra income wasn't needed for bills, it all went into savings.
- I never upgraded my house or vehicle when my income rose. That allowed me to bank extra money.
- I've mostly said no to fancy vacations in favor of low-key travel. We've made great memories through the years as a family without spending a fortune.
I've also made a point to invest my long-term savings rather than just let it sit in cash or even index funds. I frequently check in on my portfolio, rebalancing as needed. Sometimes, it's more hands-on work than I'd like, but I figure it's worth the effort.
Try to be less reliant on Social Security in retirement
At this point, we do not know what the future has in store for Social Security. It's possible that lawmakers will step in and prevent benefit cuts. It's also possible that they won't be able to find a solution despite trying. For this reason, I would encourage every single worker today to save as diligently as possible to become less dependent on Social Security in the future.
That doesn't have to mean denying yourself every single luxury. But the fact of the matter is that saving for retirement does require some sacrifice. On the flip side, you can set yourself up to have less financial stress in retirement if you're able to look at Social Security as extra money, and not essential income.
