You may have heard rumors that Social Security is running out of money. So here’s the good news — it’s not.
Social Security’s main source of revenue is payroll taxes — the ones we all see get taken out of our paychecks. And as long as those taxes remain in effect, the program can keep running.
That said, in the coming years, Social Security expects payroll tax revenue to decline substantially as baby boomers exit the workforce in droves. The program has trust funds it can tap to keep up with scheduled benefits, but only for so long. Once those funds run out of money, benefit cuts will be a strong possibility.
Meanwhile, the Social Security Trustees recently projected that the program’s trust funds will run dry by 2035. That means benefit cuts could be on the table in a little over a decade.
That’s something that has a lot of people worried, and understandably so. But I’m not concerned about benefit cuts for one big reason.
My retirement doesn’t hinge on Social Security
As someone who writes about Social Security on a regular basis, I’ve known for a long time that the program may have to cut benefits down the line. Now a lot of people are convinced that lawmakers won’t let benefit cuts happen. And the truth is, it’s hard to say whether they’re preventable or not.
That’s why my retirement strategy has always been to assume I’ll get very little money from Social Security, and make up for that by building myself a solid nest egg. In fact, when I do my retirement income calculations, I actually work with the assumption that I’ll get nothing from Social Security, and that any benefits that do come my way are really just extra money I can use for fun purposes, like leisure and travel.
This strategy allows me to take control of my retirement rather than rely on a program whose future is uncertain (and by that, I don’t mean that Social Security is going away, but rather, that it’s hard to predict what benefits will be worth down the line). And also, it pushes me to work hard and save hard.
These days, I not only max out my solo 401(k) plan, but I also aim to sock away extra money from my earnings in a brokerage account whose investments are earmarked for retirement. On top of that, I hope to continue working in some capacity during retirement, partly because I enjoy what I do and want to stay busy, but partly because I like the idea of continuing to earn an income.
Many people retire and decide they’ll never earn another dollar again. That’s fine for some people. But it’s not an arrangement I’m comfortable with.
How to worry less about Social Security cuts
Social Security cuts are a possibility that current and future beneficiaries may need to grapple with. If that’s a concern of yours, I suggest pushing yourself to boost your savings rate and find ways to cut back on spending now to free up more cash.
If you’re nearing retirement without a very strong nest egg, I’d also suggest delaying your workforce exit a few more years and using that time to boost your savings. At the same time, you may want to start networking to line up part-time work within your field so you have another income source once full-time work is no longer an option.
Of course, you can also look at working in a new field during retirement — one that interests you more than your current career. That’s something many seniors do, and it serves the joint purpose of bringing them joy as well as income.
The reality is that Social Security cuts are a distinct possibility, and we’re not so many years away from potentially seeing benefits reduced. If you want to worry less about that, set yourself up to rely less on Social Security. It’s really that simple.
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