Social Security serves as a financial lifeline for millions of retired Americans. Without those monthly benefits, a large number of seniors would be unable to cover their basic needs.
But Social Security is facing some big financial problems that lawmakers need to address -- and soon.
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In the coming years, Social Security will owe more in benefits than it collects in revenue as the labor force shrinks. Social Security can tap its trust funds to bridge that gap. But eventually, that money is going to run out.
And "eventually" may not be so far away. According to the most recent Social Security Trustees report, the program's trust funds, if combined, are expected to run out of money in 2034. At that point, it's expected that only 81% of benefits will be payable.
Given the number of retirees today who get all or most of their monthly income from Social Security, that's a scary thought. So if you're in that boat, it's important to start preparing now.
Retirees still have options
If you're working and are aware of the possibility of Social Security cuts, you have a prime opportunity to compensate for them by boosting your retirement savings. That could mean increasing your IRA contributions or putting more money into your employer's 401(k).
If you're retired, it's a little harder to build up a large financial cushion. But that doesn't you can't build savings at all.
If you're willing to work in some capacity while trimming expenses, you may be able to accumulate a meaningful pile of cash. Then, if you invest that money as you would with an IRA or 401(k) plan, you may find that if Social Security benefits are cut in the future, you have a cushion to fall back on.
And do keep in mind that working does not have to mean signing up for an office or retail job with set hours. The gig economy gives people flexibility in how they work, and that's something you can take advantage of as a retiree.
It could also pay to look at downsizing your home if you have a lot of equity in it. First, downsizing could leave you spending less money each year on property taxes, homeowners insurance, and upkeep. But also, if you're able to sell and buy a replacement home while pocketing, say, $40,000 of equity, that's $40,000 you can save and invest for future retirement years.
It's best to have a plan
Social Security cuts are not set in stone. It's possible that lawmakers will find a way to prevent a broad reduction in benefits, whether by changing the rules of taxing wages or using other strategies.
But if you're retired, it's important to prepare for Social Security cuts starting now. Rethink your spending, work if you can, and pull some equity out of your home while property values are up on a national level. It's a better strategy than simply sitting around and counting on lawmakers to step up and solve the problem, which they may or may not be able to do.
