The Social Security Trustees shared some pretty bleak projections in their latest report, which was released last week. By 2035, Social Security expects to exhaust its trust funds, which are the cash reserves it can tap when its financial obligations exceed its incoming revenue.
Those trust funds are important, because in the coming years, Social Security expects to pay out more in benefits than it collects in revenue -- we can thank the mass exodus of baby boomers from the workforce for that. Once those trust funds run dry, which the Trustees say may happen as early as 2035, Social Security may have no choice but to slash benefits to the tune of 21% unless Congress manages to intervene and save the program from insolvency.
At first glance, that's really bad news for the millions of seniors who rely on Social Security to pay their bills today and for future retirees who expect to need those benefits once their careers wrap up. But if you're years away from retirement, you have a solid opportunity to make up for a potential Social Security cut – and salvage your golden years.
Don't rely too heavily on Social Security
While the idea of a reduction in benefits may seem disappointing or even alarming, one thing to keep in mind is that Social Security was never designed to sustain seniors in the absence of other income. If you're an average earner, those benefits, in their current state (meaning, no cuts) will replace about 40% of your pre-retirement wages. Most seniors, however, need close to double that amount to live comfortably, especially when we account for the rising cost of healthcare. As such, you should make an effort to save independently for your senior years, and now that you have a heads-up that Social Security cuts may be happening, you can ramp up your 401(k) or IRA contributions to compensate.
Of course, socking money away for retirement isn't easy, but if that milestone isn't happening for decades, you don't need to part with an uncomfortably large chunk of your income to build a substantial nest egg. Case in point: Setting aside $300 a month for 35 years with give you roughly $500,000, assuming you invest that money at an average annual 7% return, which is a reasonable return given the stock market's historic performance. Make it $400 a month, and you'll be looking at over $660,000.
To be clear, it's too soon to tell whether Social Security will actually need to move forward with benefit cuts. Lawmakers are invested in avoiding that scenario, especially since it could plunge countless seniors into poverty. But if you'd rather not have to worry about Social Security's future, take your retirement income into your own hands. If you save diligently in a 401(k) or IRA and invest that money wisely, you may even land in a scenario where you don't need your Social Security benefits at all, and can use that money for travel and entertainment rather than rely on it to put a roof over your head.
If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $16,728 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after.