The Social Security Trust funds are dwindling, which could have a severe impact on both current and future program participants. Social Security is supported through two sources: employee payroll taxes and Old Age and Survivors Insurance (OASI). Payroll taxes alone cannot cover the program’s payouts, thus the OASI fund fills the gap.
However, this fund has an expiration date. According to Social Security Administration calculations, the fund will be depleted by 2033, or less than ten years from now; when combined with the other fund in the responsibility of benefits, the Disability Insurance (DI) Trust Fund, the deadline is extended to 2035. This isn’t the first time the program has gone underwater and required Congressional aid to stay running, but the deadline for the cuts is approaching, and no solution is in sight.
This is bad news for anyone who is currently relying on the program or plans to do so in the future because, without it, a rising proportion of Americans will fall into poverty. The best thing future retirees can do is not wait for lawmakers to settle the issue, but rather plan ahead of time to achieve as much independence from public finances as possible.
How to Prepare While You’re Still Working
The benefit is enormous and should not be underestimated for people who are still working and do not rely on a fixed income to survive. Knowing you have a few years to prepare may prompt you to redesign your budget and allocate a larger percentage to savings to bridge the gap between expected funds and the reality of what lies ahead.
To that end, the Internal Revenue Service (IRS) has adopted catch-up contributions, which enable employees over the age of 50 to improve their savings potential in 401(k) or IRA accounts. Investing in dependable portfolios and boosting personal savings will be critical to a comfortable and pleasurable retirement.
If you are still employed, you will have the opportunity to review your retirement arrangements. For example, you may have intended to retire at the age of 62, but if your finances do not allow for it, you have the option to pivot and wait a little longer. Even though 62 is the oldest age at which you can receive Social Security benefits, the amount is insufficient for most families to live on, especially when medical expenses are considered, so waiting until Medicare benefits begin may be a wise decision.
What Do You Do if You’re Already Retired and Rely on Social Security?
Retirees have fewer options, but that does not mean they are unable to improve their circumstances. Joining the gig economy is one of the most straightforward methods for able-bodied retirees to supplement their earnings. This could help them build a nest egg in case of a cut. If they started immediately, they would have ten years to save money.
Moving to another part of the country where Social Security payments are more generous is another possibility; while leaving friends and family behind is difficult, people who live in high-cost locations will be astounded by the change in lifestyle.
The best thing retirees can do is think about their options, balance their budgets, and take a close look at their finances. This will help them determine what steps to take to ensure that benefit reduction does not have a detrimental impact on them.