For years now, rumors have been flying that Social Security is on the verge of going away. But thankfully, those rumors are bogus.
Social Security is not in danger of disappearing completely for one giant reason — its primary source of funding is payroll tax revenue. And as long as workers continue to get taxed on their earnings to fund the program, Social Security can continue to exist.
That doesn’t mean that Social Security will be able to afford to keep up with scheduled benefits, though. In the coming years, the program is expected to owe more to retired and retiring seniors than what it collects via labor force contributions. And while Social Security can tap its trust funds to keep up with scheduled benefits for a while, in time, those funds are apt to run dry.
Image source: Getty Images.
In fact, recent projections have Social Security’s trust funds running out of money in 2034 — just 10 years from now. So lawmakers have limited time to come up with a solution to prevent those cuts from happening. That’s why it’s a good idea to come up with a plan for dealing with those cuts — whether you’re currently receiving Social Security or are still working.
Set yourself up with a game plan
Social Security cuts aren’t guaranteed to happen. But the fact that lawmakers have yet to arrive at a preventive solution doesn’t bode so well. So it’s a good idea to figure out how you’ll cope with less money from Social Security should that situation come to be.
If you’re already retired, one option to look at may be going back to work. Earnings from a part-time job could replace the portion of your monthly Social Security check that’s at risk of going missing.
Another option is to downsize your home, and possibly your lifestyle. If you’re able to sell a larger home and buy a replacement one at half the cost, you can pocket the difference and use it as income. Plus, downsizing might mean spending a lot less on expenses like property taxes and maintenance. Along these lines, cooking more at home versus dining out frequently could help you conserve cash.
You can also look to move to a part of the country where living costs are generally lower. Just be mindful of the fact that certain states tax Social Security benefits.
Meanwhile, if you’re still working, your best course of action for dealing with Social Security cuts is to save, save, and save some more. The larger a nest egg you manage to bring with you into retirement, the less likely you’ll be to struggle financially on a smaller Social Security benefit.
In fact, let’s say you’re 35 years old with $15,000 in savings to date. If you contribute $500 a month to your retirement plan over the next 30 years, and your portfolio delivers an 8% average annual return, which is a bit below the stock market’s average, you’ll end up with over $830,000.
Nothing’s set in stone
Social Security has been bailed out by lawmakers before in the context of potential cuts, so that may very well happen again this time around. But your best bet is to put a plan in place in case you end up with less money from the program than expected down the line.
