Millions of Social Security beneficiaries are bracing themselves for a 19% cut in Social Security benefits. According to a recent Social Security Trustees report, the program could run dry of funds as early as 2034. If this happens, monthly benefits could be slashed by nearly 19% leaving beneficiaries with just 81% of what they should receive.
Besides the cuts, the average recipient gets about $2,000, which is meant to replace around 40% of pre-retirement income. This falls short of 70% to 80% that is recommended by most financial experts.
However, you cannot rely on this income because if you do, you could end up in financial jeopardy.
Why Saving Matters More Than Ever
If you retire at age 66 and expect to receive $2,000 per month from Social Security, that is only $24,000 annually. Even if benefit cuts were prevented, the amount is not sufficient to cover all healthcare, housing, and inflation expenses.
Now, imagine you save an extra $300 a month starting at age 30. Assuming an average 8% annual return, your retirement savings could grow to around $620,000 by age 65.
Using the widely accepted 4% withdrawal rule, that would provide you with an additional $25,000 per year, effectively doubling your retirement income. And if Social Security cuts do happen, this cushion could be the difference between a comfortable retirement and a financial struggle.
What If You’re Starting Late?
If you are I your 30s, it’s not too late to improve your financial status. Boosting your income by even $100 or $200 could still have a huge impact over time. For instance, if you are over 50, you could invest in a 401 (k) or an IRA.
You can also review your spending plan and make the necessary reductions on unnecessary expenses that could free up cash to invest in your future.
Will Social Security Cuts Really Happen?
It is important to note that the potential cuts are not uncertain, especially if Congress enacts some of the potential solutions, such as increasing the payroll tax cap or adjusting eligibility age before the trust funds run dry.
However, if no action is taken, then Social Security could run dry, and beneficiaries would have their benefits cut by at least 19%.
Your Future Self Will Thank You
Although it’s a challenge to save hundreds of thousands, it is important for people to consistently save for their retirement. The most important step is to automate savings, take advantage of employee matching, and review your portfolio regularly to ensure you stay on track.
Conclusion
Although the future of Social Security remains uncertain, one should be sure about their savings. For now, it’s crucial to forget the potential 19% cuts and take control of their retirement. This can be done by boosting the savings rate, having a good investment strategy, and having a well-curated retirement timeline.