The program’s outlook isn’t exactly wonderful.
There are many retired Americans today who would not be able to make ends meet without Social Security. A lot of people inevitably reach retirement age without savings and have to rely heavily on those benefits to cover their living costs. So it’s fair to say that Social Security is extremely important to a large number of retirees, and that many future retirees are banking on those benefits to get by.
It’s therefore disturbing to see all of the gloom and doom about Social Security in the news these days. The program’s Trustees recently released a report on the state of Social Security’s finances, and their update wasn’t exactly favorable.
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Not surprisingly, only 36% of Americans are confident in the future of Social Security, according to a recent survey by AARP.
But just how worried should Americans be about where Social Security is headed? Here’s the truth.
Benefits aren’t going away
A lot of people are worried that after years of paying into Social Security, there won’t be any money left over for them once they’re ready to collect benefits as retirees. If that’s a chief concern of yours, here’s some potentially reassuring news.
Social Security is not in danger of going away. And the reason is that Social Security’s primary revenue source is payroll taxes.
As long as workers keep paying into Social Security, it can keep running. This doesn’t mean the program will keep running smoothly, but it can at least continue to exist.
Social Security cuts are something to brace for
While Social Security may not be in danger of disappearing, benefit cuts are a distinct possibility at this point. As the labor force shrinks, Social Security may not collect enough money in payroll taxes to keep up with its benefit obligations.
Social Security can use the money in its trust funds to cover benefits, too. But once those trust funds run out, Social Security may have no choice but to reduce benefits broadly.
The program’s Trustees recently said that Social Security’s combined trust funds are expected to run out by 2034, at which time only 81% of benefits would be payable. If so, that’s a pretty big financial hit for retirees who rely on that income. But it’s also a far cry from benefits going away completely.
It’s also important to understand that benefit cuts are not set in stone. Lawmakers can enact different policies that prevent Social Security from having to reduce benefits — a move that would no doubt spur a major poverty crisis among retirees.
Still, it’s a good idea for workers today to prepare for Social Security cuts. And the best way to do so is to save as diligently as possible.
If that doesn’t come naturally to you, try:
- Sending your raise directly into your 401(k) plan each year.
- Contributing enough to your 401(k) to claim your full workplace match.
- Reducing one household bill and using your freed-up cash to fund an IRA.
- Working a side job and using your earnings to build a retirement nest egg.
It’s too soon to know exactly what’s in store for Social Security, but the fact that most Americans aren’t confident in its future is telling. Rather than stress about that, try your best to take steps to improve your personal financial outlook.
And it’s not too late to do that as a retiree, too. That could mean reducing expenses, working part-time, or a combination of both that makes it possible to build some savings in case Social Security cuts do end up happening.
Great Job newsfeedback@fool.com (Maurie Backman) & the Team @ The Motley Fool Source link for sharing this story.
