Key Points
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Social Security is facing a funding shortfall that may result in benefit cuts.
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Widespread cuts could be disastrous to millions of seniors’ finances.
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Congress has never allowed Social Security to cut benefits before, so while you should still plan for them, there’s reason to hope for the best.
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If there’s one source of income that’s crucial to millions of seniors today, it’s Social Security. So the fact that the program is at risk of cutting benefits is no doubt a source of stress for many retirees.
The reason Social Security faces potential cuts boils down to a funding shortfall. The program’s main source of revenue is payroll taxes. But as the ratio of labor force participants to beneficiaries shrinks, Social Security’s limited financial resources will be strained. That could lead to widespread benefit cuts in roughly six years based on the program’s Trustees’ most recent projections.
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Clearly, that’s a scary thought. But should retirees really be worried about Social Security cuts? Here’s the truth.
Cuts are possible, but there’s a lot at stake
When you look at Social Security cuts from a numbers perspective, they might seem inevitable. The program’s Trustees know there won’t be enough money to keep up with future benefits in full if Congress doesn’t intervene.
The thing is, Social Security has faced potential benefit cuts before. And Congress has always stepped in — even at the last minute — to prevent cuts.
As such, many experts expect lawmakers to implement reforms that allow Social Security to maintain full benefits. Those reforms may have other unwanted consequences, but there’s no simple solution to keep Social Security benefits fully payable.
Also, it’s well known that retirees and older Americans make up a significant share of voters. Sitting back and allowing Social Security cuts to take effect could cost lawmakers the votes they need, which is another reason they’re unlikely to do nothing.
Should you be preparing for Social Security cuts?
While you don’t necessarily have to spend your days actively worrying about Social Security cuts, it’s a good idea to prepare for them nonetheless. The first thing to do is see what your finances might look like with 22% less Social Security. That’s the cut the program’s Trustees say may be coming in about six years.
If you have enough income from your remaining benefits plus retirement plan withdrawals to keep up with your bills, you may not have to do much. If that’s not the case, working part-time to build savings could be a smart choice, as could reducing spending as much as possible.
Social Security cuts could plunge countless retirees into poverty. For that reason alone, lawmakers are unlikely to do nothing. But it’s best to have a backup plan in case program cuts aren’t fully preventable so you aren’t left in the lurch.
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