How Long Will Social Security Last
In 2018, the Social Security Trustees released their annual report. Social Security is expecting to exhaust all of their trust funds by the year 2033.
However, America is all about making changes. So, many questions arise.
Will politicians be able to save the program? Or will Americans agree to cut Social Security spending?
The Social Security Trust Fund pays for things like:
- Survivor benefits
- Disability benefits
Through payroll taxes, you give money to Social Security.
How Long Will Social Security Last?
The money you pay your taxes with isn’t the money you’ll receive when you retire. You and your employer are paying taxes that cover those currently receiving Social Security.
Social Security is running out of funds.
Basically, the working-age population is declining.
As the worker-to-beneficiary ratio continues to drop, fewer people will be putting money into the system and more people will be taking money out.
The good news is, there are almost two decades until lawmakers must act before funds are entirely gone.
Social Security Will Last
There are a few key things that you should keep in mind as you prepare for retirement.
Social Security will still be paying for your benefits; however, the reduction of benefits is likely.
The goal is to attempt to bring spending back in line with tax revenue.
For example; couples in 2018, on average collect $2,340 in benefits. When you reduce that number by 25%, you’re now looking at monthly benefits of $1,755.
This can make a huge difference in your monthly income and budget.
For those who plan to retire in the next 15 years, you need to prepare for a potential reduction in benefits.
Many Americans are under the impression that once the Social Security Trust Funds run out of money, Social Security benefits will stop entirely. This is not true.
However, there will be a reduction in benefits and that is a financial issue for many Americans.
Secure Your Financial Future!
When saving for retirement, you deposit about 8-9% of your income into your 401K.
However, if securing financial stability is a priority for you then, it’s highly recommended you bump that percentage up to 10-11%.
Of course, not everyone can afford to set aside that much of their paycheck.
The good news is that there are some options:
- Some employers have a 401(k) “auto-escalation feature”.
- This feature allows you to slowly increase the percent you save by 1 to 2 percent annually, until the desired savings amount has been reached
- Increasing your savings amount by a couple of percentage points
Fixing Social Security
Cuts in Social Security are expected in the upcoming years. However, there are ways to fix this issue.
Yes, the options are likely to be unpopular but if Congress acts to protect Social Security full benefits before 2034 then benefit funds may not run out.
The current options include:
- Reduce government spending and instead, use general revenue for Social Security
- Increase the retirement age
- Raise payroll taxes
- Or borrow the money from another country
Of course, these choices are less than ideal; but for Social Security to continue to pay for full benefits for recipients that are entitled to it, one of these options is going to have to work.
Good Things Take Time, Great Things Take Longer
There’s a high chance that Washington will prolong making any significant changes to Social Security until the actual crisis is closer to happening. However, waiting until the problem arises could come at a high cost.
Once the crisis hits much more aggressive actions will be needed to make these changes work effectively.
If nothing is done until 2034 lawmakers will need to raise payroll taxes to over 16%. Cut that in half between employers and employees and that’s right over 8% for each.
Additionally, all benefits would also have to be reduced by 23%
For current and future retirees, neither of these options sound appealing or even feasible.
Supplement Your Social Security Income
Experts are stating that Social Security was intended to be a “last resort”.
Meanwhile, many Americans are relying solely on their benefits throughout the duration of their retirement years.
Should you be depending mainly on your Social Security checks? No, you shouldn’t.
The Likely Future of Social Security
The big question is, what is making the Social Security Trust Funds run out?
Well, the answer is unfortunate but very familiar for many. Social Security Trust Funds needs more funding than is currently in place to support the program.
For many Americans, they have a form of savings account like:
- a 401(k) plan
- Or, 403(b) plans through an employer
Sadly enough, there’s 40% of Americans who don’t have that option.
Working Americans are taking saving money more seriously as Social Security admits to running out of funds.
The earlier you begin to save for your future, the easier the transition will be once you decide you’re ready to stop working.
Make a Game Plan & Don’t Wait!
In summary, you should begin to save and plan for your future as early as your monthly budget will allow.
Preparing, even just a little at a time, can make a huge positive impact on your future once you reach the age of retirement.
Many people don’t or aren’t able to save and when it comes time to retire, they find themselves panicking or relying on their benefits to be their main source of income.
This is dangerous, and it’s poor planning. Expect changes to the system and benefits over the next 10-15 years.