Social Security is such an important income source for so many seniors that even when the program's cost-of-living adjustments are tiny, it tends to make a big difference in a lot of retirees' financial lives.
Of course, getting most of your retirement income from Social Security is far from an optimal situation. With the average monthly retiree benefit today coming in at only $2,015, living on Social Security alone commonly means having to cut corners in a serious way.
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Still, there are seniors who do manage to get by on just Social Security. But the days of doing so may be numbered.
Social Security is facing the possibility of benefit cuts if lawmakers don't manage to address the program's impending financial shortfall. While those cuts are not slated to happen in 2026, they're also not so far off based on recent projections.
When Social Security cuts could happen
You may be wondering exactly how Social Security got into a situation where it may not be able to pay all of its scheduled benefits. The answer boils down to how Social Security is funded.
Social Security gets most of its revenue from payroll taxes. But as the labor force shrinks in the coming years due to mass retirement among baby boomers, the program will be denied key revenue.
Yes, as older workers retire, younger ones are apt to come in and take their place. But the replacement rate won't necessarily be one-to-one.
Not only are there fewer younger workers in general, but as technology evolves, a growing number of jobs may gradually be outsourced to AI. That could save companies money. But it could also deny Social Security the money it needs to keep operating.
The good news is that Social Security has enough money in its combined trust funds to keep up with scheduled benefits until 2034. But beyond that point, the program may be looking at about a 19% reduction in benefits broadly -- unless, of course, lawmakers are able to find a solution to address that shortfall.
That said, there's no guarantee that Social Security will be able to combine its two trust funds. The Old-Age and Survivors Insurance (OASI) Trust Fund, which is what retirement benefits are paid out of, is set to run dry by 2033. From there, Social Security recipients may be looking at about a 23% benefit cut.
Social Security could combine its OASI Trust Fund with its Disability Insurance Trust Fund to prevent benefit cuts for an extra year. But that's something lawmakers would need to specifically vote in.
Prepare now for potential Social Security cuts
Although Social Security cuts are by no means set in stone, and the timeline above could change, it's important to begin preparing for them in 2026. That holds true whether you're a current retiree or a member of the workforce.
If you're still working, what you need to do is very clear -- boost contributions to your IRA or 401(k) plan so you're less reliant on Social Security once your retirement kicks off.
If you're retired, you may have a bit of a tougher road ahead. But one thing you can do immediately is examine your budget and find ways to make some cuts.
Another option may be to return to work. Even if you don't need extra money in the near term to cover your costs, it's never too late to build the retirement nest egg you didn't get around to building while you were working. And you should know that anyone with earned income can fund an IRA, regardless of age.
One thing you shouldn't do, however, is sit back and assume that lawmakers will solve the problem of Social Security cuts so you don't have to worry about it. Although it's in their best interest to prevent those cuts -- namely, to avoid a massive poverty crisis among retirees -- that doesn't mean they'll succeed. So you're better off taking action to avoid personal financial upheaval.
