Social Security is facing a funding crisis that could lead to benefit cuts in the coming years. The Social Security Administration projects that the program’s trust funds will be depleted by 2033, potentially resulting in a 21% reduction in benefits. Many Americans seem unaware of this looming issue, despite the SSA’s transparency and media coverage.
However, individuals have roughly 10 years to put a personal plan in place to overcome the potential benefit cut. One option is to create a diversified investment bucket separate from other investments, specifically designed to make up for the anticipated Social Security shortfall. Another possibility is to purchase a deferred income annuity equal to the expected reduction, providing a guaranteed income stream beginning on a future date and continuing for life.
Delaying claiming Social Security benefits until age 70 can also increase the monthly payment amount, potentially making up the difference from the benefit cut.
Preparing for potential benefit cuts
If Congress takes action to prevent the cut, individuals who have prepared will have extra money for retirement, allowing for more travel, larger inheritances, or funds for long-term care.
A recent National Academy of Social Insurance survey provides insight into changes Americans would support to address the shortfall. These include imposing payroll taxes on earnings over $400,000, gradually raising the payroll tax rate, adjusting cost-of-living calculations to reflect senior spending, providing a caregiving credit, offering a bridge to benefits for older workers in physically demanding jobs, and reducing benefits for high-income retirees. Whether these proposals will be enacted remains uncertain, but Americans might need to reassess their retirement plans to accommodate new Social Security policies.
For those still in the workforce, saving diligently and investing heavily in stocks can help outpace inflation. Retired individuals should consider reassessing and cutting expenses, downsizing, or exploring flexible work opportunities. While it is not certain that Social Security benefits will be cut, preparing for this possibility is crucial to mitigate the impact and provide financial stability.
Having a plan in place will help avoid being caught off guard if the news turns out to be unfavorable.
