Social Security is designed to help seniors manage well financially once they stop working. So why is it such a source of, well, insecurity?
The reason is twofold. First, a lot of people, unfortunately, rely too heavily on the program, not realizing it isn’t meant to be a sole retirement income source. Second, the program is facing financial challenges that could impact benefits.
But just how worried should you be about Social Security? Here’s the scoop.
Benefits might be cut, but they aren’t going away
For years, rumors have persisted about Social Security’s impending demise. But that’s not what’s happening.
In the coming years, Social Security expects to owe more money in benefits than it collects in revenue. As such, it will need to rely on its trust funds to keep up with its expenses.
Once those trust funds run dry, benefit cuts could be on the table. And the latest estimates point to those trust funds running out of money by 2035.
Clearly, that’s not the best of news. But it’s also a far different scenario than benefits disappearing. And those planning for retirement, or those already retired, should absolutely make that distinction.
That, however, leads into the other reason so many people are insecure about Social Security. The reality is that even if benefits aren’t cut, the program is designed to only replace about 40% of the average earner’s pre-retirement income. But most seniors need roughly double that amount to live comfortably.
Let’s think about the expenses seniors commonly incur. There’s housing (even those with paid-off mortgages need to cover property taxes, insurance, maintenance, and home repairs), transportation, food, utilities, and healthcare — an expense that could soar during retirement. And let’s not forget the cost of staying busy.
Working is a pretty cost-effective way of filling our days. But retirees who opt not to work, or who aren’t able to, often end up having to spend money to stay reasonably busy.
As such, depending solely on Social Security to cover living costs in retirement is a move that could (and does) leave countless seniors cash-strapped. And so it’s easy to see why there’s so much Social Security insecurity.
The right approach to collecting benefits
Those planning for retirement should not write off Social Security. But should they anticipate benefit cuts and boost their savings rates to account for them? Absolutely.
Similarly, in the course of retirement planning, it’s a good idea to assume that Social Security will only pick up about 50% of senior living costs. The rest will need to come from savings, part-time work, or other sources.
Those who get on board with this line of thinking should start to feel better about Social Security. And that applies to current beneficiaries, too.
The idea of having to give up those benefits completely is something that’s easy to lose sleep over. Knowing this scenario isn’t on the table should give current retirees some peace of mind, though anyone in that boat should also look at trying to cut expenses to compensate for potential benefit cuts.
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