Key Points
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Social Security is a significant source of income for many retirees.
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However, with benefit cuts potentially coming within the decade, it’s wise to start preparing now.
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Reducing your dependence on benefits can help protect your financial future.
Most older adults rely on Social Security to some extent in retirement, and for some, it’s their only source of income. But with the program on shaky ground, it’s a good idea to have realistic expectations about how far your benefits will go.
If there’s one thing I could tell everyone about Social Security right now, it’s this: Have a backup plan.
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Is Social Security running out of money?
The program itself is not going bankrupt, but its two trust funds are quickly being depleted. Social Security is funded almost entirely by payroll taxes, and in recent years, that income hasn’t been enough to fully fund benefit payments.
To prevent benefit cuts right now, the Social Security Administration (SSA) has been taking money from its trust funds to cover the deficit. But both of these trust funds are expected to run out by 2034, according to the SSA Board of Trustees’ latest estimates published earlier this year.
If we reach that point without Congress finding a solution to the cash shortfall, Social Security’s income sources will only be sufficient to cover around 81% of scheduled benefits. In other words, retirees may face benefit cuts of close to 20% by 2034 if nothing changes.
What can you do?
The situation with the trust funds may be largely out of your control, but being aware of when benefit cuts may be coming can help you prepare accordingly.
If you can swing it, now is the time to boost your savings so you won’t need to rely as heavily on Social Security. Sources of passive income can also help strengthen your nest egg, or you might take more drastic steps to reduce your expenses.
Even small moves can make a big difference, and the more you can do to reduce your dependence on Social Security, the more protected you’ll be against potential benefit cuts.
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