A Major Social Security Deadline Is Approaching Faster Than Many Americans Realize
Key Points
Social Security's trust fund that retirement benefits are paid from could run dry by 2032.
At that point, benefits could be subject to a 22% cut.
Congress has never allowed Social Security to reduce benefits broadly in the past, but it's hard to know whether cuts are avoidable this time around.
If you're planning to collect Social Security benefits in retirement, you may be aware that they play an integral role in many older Americans' finances. And whether you expect those benefits to cover most of your retirement expenses or simply supplement withdrawals from an IRA or 401(k), you probably want to get every last dollar in Social Security you're entitled to.
That's why you should be aware that Social Security is facing a key deadline. According to the program's Trustees, the program's Old-Age and Survivors Insurance (OASI) Trust Fund is expected to be depleted in 2032.
Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a "Double Down" signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same "Total Conviction" signal is flashing for a company 1/100th the size of Nvidia. Continue »
Image source: Getty Images.
The good news is that Social Security won't disappear once its OASI Trust Fund, which pays retirement benefits, runs out of money. But it's important to be aware of the consequence that might ensue.
Why 2032 could be a milestone year for Social Security -- and not in a good way
If you've heard rumors that Social Security won't be able to pay benefits come 2032, you can rest assured that's not true. Social Security is primarily funded by payroll taxes. So as long as there's an active labor force, there will be revenue coming into the program, allowing it to pay benefits to some degree.
The problem is that the labor force is shrinking. And Social Security is not expected to take in enough revenue in the coming years to keep up with scheduled benefits. That's why that 2032 OASI Trust Fund depletion date is so significant.
Once that trust fund runs dry, Social Security may have to cut benefits by 22%. For seniors who get most or all of their monthly income from Social Security, a reduction that size could be catastrophic. And even if you're only looking at Social Security as a means of supplementing your retirement account withdrawals, losing 22% of those monthly payments could seriously impact your future financial plans.
You need to prepare, even if lawmakers act
While a potential 22% Social Security cut sounds alarming, you should also know that the program has faced a similar financial crunch in the past. And were benefits cut? No.
Lawmakers could take action once again to prevent benefit cuts. But there's no guarantee that they'll be able to stave off cuts completely. That's why relying on your benefits in full may not be the smartest move.
A better bet? Create a financial plan for your retirement that does not rely on getting all of your Social Security.
You may need to increase your savings rate to compensate, or generate income in other ways, such as working on a part-time basis later in life. But it's best to map out an alternate universe where your Social Security checks don't come in completely.
And if you're nearing retirement, you should run through that exercise sooner rather than later. Even though lawmakers have time to address Social Security's financial shortfall before that 2032 deadline, the clock is ticking down. And you don't want to rely on Congress to protect your financial future.
The $23,760 Social Security bonus most retirees completely overlook
If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income.
One easy trick could pay you as much as $23,760 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Join Stock Advisor to learn more about these strategies.
The Motley Fool has a disclosure policy.
Recommended Articles
Comments (0)
Click the $ button, enter the symbol, and select to link a stock, ETF, or other ticker.