When you're living on a fixed income, just paying your monthly bills sometimes can be a challenge. Even with Social Security, you'll likely still have to cover a big chunk of your expenses entirely on your own.
To make things even more complicated, we don't know what our future expenses will be. Changes at the federal level could also make the following two years especially difficult for seniors struggling to make ends meet.
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1. 2029
Qualifying seniors are enjoying the savings from the new senior tax deduction this tax season. This reduces your taxable income by up to $6,000, resulting in an increase of $670 in after-tax income for the average senior.
This deduction is scheduled to remain in force through the 2028 tax year, but its future beyond that remains uncertain. The federal government may choose to temporarily extend the deduction or make it permanent. However, it could also decide to end it, leading to a notable increase in seniors' tax bills beginning with the 2029 tax year.
This wouldn't affect those without valid Social Security numbers or high earners -- defined as single adults with modified adjusted gross incomes (MAGIs) of $175,000 or more and married couples with MAGIs of $250,000 or more -- as they don't qualify for the new deduction. But those claiming it this year will want to keep a close eye on the future of this tax break as 2028 nears.
2. 2032
The year 2032 could prove even more challenging because that's when Social Security's trust funds are expected to be depleted, according to a recent Congressional Budget Office report. If the government combined the Old Age and Survivors Insurance (OASI) trust fund with the Disability Insurance (DI) trust fund, then the program could continue as normal until 2033.
After that point, Social Security could face benefit cuts of around 19% unless the government reforms the program before then. That would drop the current $2,075 monthly benefit to about $1,681 per month.
It's likely the government will take steps to prevent a benefit cut this extreme, but no one knows how it will approach the issue. It's possible that Social Security payroll taxes could increase, affecting workers' take-home pay, or the government could increase the benefit taxes that retirees pay on their checks.
This is another thing you'll have to watch as the deadline approaches. Seniors would also do well to minimize their reliance on Social Security whenever possible, whether that means strategically withdrawing their retirement savings or picking up a retirement job to give them another steady source of income.
Once the government decides how it'll keep Social Security sustainable for future generations, it'll be time to rethink your budget.
