Here’s the Truth About Social Security Benefit Cuts

There are millions of older Americans today who rely on Social Security for income. And while some seniors use Social Security as a supplement to their savings, others depend on it to cover most or even all of their bills.

There are also many working Americans who aren’t managing to save for retirement – not because they don’t want to or think it’s unimportant, but because their finances just don’t allow for it. People in that boat might one become very reliant on Social Security once their careers wrap up.

All of this makes Social Security’s precarious financial situation even scarier. The program is facing a major revenue shortfall that could have a huge impact on current and future retirees. But it’s important to know the truth about what’s happening and not buy into any rumors.

Is Social Security at risk of going away?

If you’re worried that Social Security won’t be there at all once you retire, here’s some reassuring news. The program is not at risk of disappearing completely.

Social Security gets most of its funding from payroll taxes. So as long as there’s a workforce, Social Security can take in revenue and use that money to pay benefits.

However, a decline in payroll tax revenue for Social Security is expected as baby boomers exit the workforce and a smaller number of replacement workers come in. Social Security can use the money in its trust funds to keep up with benefits for a number of years in that scenario. But once those trust funds are out of money, Social Security may have no choice but to cut benefits.

What sort of cuts are we talking about? Recent estimates point to cuts in the 20% ballpark. That number could change — for better or worse — in the coming years.

It’s also worth noting that Social Security benefit cuts are not guaranteed to happen. Lawmakers have different solutions they can introduce to prevent them. But those solutions may have other undesirable consequences, which is why Social Security is in such a tough spot right now.

How to prepare for Social Security cuts

Whether you’re currently receiving benefits from Social Security or hope to in the future, you can still bank on getting some amount of monthly income from the program. It’s just a matter of how much given the potential for widespread cuts.

That’s why it’s important to prepare for benefits to be cut. If you have a plan, those cuts may be less detrimental to your finances.

If you’re currently retired and receiving benefits, it’s time to take a close look at your spending and see if there’s room to cut back on expenses. If so, you can bank some savings to prepare for a potentially smaller Social Security check down the line. You can also look at working part-time to generate some income.

If you’re still working, it means you can start saving for retirement — even if that’s something you haven’t done yet. Reassess your spending, and if there’s truly no room to cut back, consider a second job. The gig economy, thankfully, makes it possible to juggle two jobs because you can take on a side hustle that’s flexible.

Also, it pays to see if your company offers a 401(k) plan with a matching incentive. You could potentially double your retirement plan contributions by claiming your employer match in full.

All told, it’s very possible that Social Security cuts will end up happening. Preparing could lead to a better outcome for you, so that’s something it pays to do.