You may have heard rumors that Social Security is running out of money. So here’s the good news – it’s not.
Social Security’s main source of revenue is payroll taxes — the ones we all see being taken out of our paychecks. And as long as these taxes remain in effect, the program can continue to operate.
That said, in the coming years, Social Security expects payroll tax revenue to decline significantly as baby boomers exit the workforce in droves. The program has trust funds that it can draw on to meet scheduled benefits, but only for a certain period of time. Once these funds run out, benefit cuts will be a strong possibility.
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Meanwhile, Social Security administrators recently projected that the program’s trust funds will run out by 2035. That means benefit cuts could be on the cards just over a decade from now.
This is something that worries a lot of people, and it’s understandable. But I’m not concerned about benefit cuts for a big reason.
My retirement does not depend on social security
As someone who writes about Social Security regularly, I’ve known for a long time that the program might have to cut benefits down the line. Now, many people are convinced lawmakers won’t let the benefit cuts happen. And the truth is, it’s hard to say whether they’re preventable or not.
That’s why my retirement strategy has always been to assume that I’ll get very little Social Security money and compensate for that by building myself a solid nest egg. In fact, when I do my retirement income calculations, I’m actually working with the assumption that I’m not going to get anything from social security, and that any benefits that come my way are really just extra money that I can use for fun purposes, like hobbies. and travel.
This strategy allows me to take control of my retirement rather than relying on a program whose future is uncertain (and by that I do not mean that Social Security is going away, but rather that it is difficult to predict which benefits will be worth all the way). And also, it drives me to work hard and save hard.
These days, not only am I maximizing my solo 401(k) plan, but I’m also aiming to save extra money from my earnings in a brokerage account whose investments are for retirement. Also, I hope to continue working to some extent in retirement, partly because I love what I do and want to stay busy, but also because I like the idea of continuing to earn a revenue.
Many people retire and decide that they will never earn another dollar again. That’s good for some people. But it’s not an arrangement I’m comfortable with.
How to Worry Less About Social Security Cuts
Social Security cuts are a possibility that current and future recipients may have to contend with. If this concerns you, I suggest you push yourself to increase your savings rate and find ways to cut spending now to free up more money.
If you’re approaching retirement without a very solid nest egg, I would also suggest delaying your exit from the workforce for a few more years and using that time to increase your savings. At the same time, you may want to start networking to line up part-time work in your field so that you have another source of income once full-time work is no longer an option.
Of course, you can also consider working in a new field during your retirement, one that interests you more than your current career. This is something many seniors do, and it serves the common goal of bringing them joy as well as income.
The reality is that Social Security cuts are a distinct possibility, and we’re not that long before we potentially see reduced benefits. If you want to worry less about it, prepare to depend less on Social Security. It really is that simple.
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