As retirees, many seniors today rely primarily on Social Security to make ends meet. In the absence of savings, some people rely only on their benefits. But will you get the opportunity to do the same?
A recent Transamerica poll found that 37% of respondents feared a drop in payments as a key retirement worry. But are their worries justified or exaggerated?
Why Social Security Is In Trouble?
You should be concerned about receiving less money from Social Security than you are entitled to based on your earnings history. The program’s trust funds are likely to be spent as early as 2035, and benefit changes may be considered.
As it is, many seniors who rely primarily or completely on Social Security must take severe measures to stretch those benefits, such as cutting tablets in half or skipping prescription doses due to cost. Benefit cuts could push many seniors into poverty and trigger a catastrophic health disaster. So, while benefit changes may appear to be unavoidable at this stage, politicians may find a way to prevent them simply because they must. What that looks like is not clear.
Longer life expectancies, a reduced working-age population, and a rise in the number of pensioners all contribute to the problem. By 2035, the number of Americans aged 65 and more will have risen to more than 78 million, up from around 56 million now. As a result, more people will withdraw money from the system, while fewer will pay into it.
However, this does not imply that the program will run out of funds totally. Payroll taxes are estimated to fund approximately 78% of planned benefits. However, if the funding gap is not closed, seniors may receive lower payments, or employees may be required to contribute more to the system. According to experts, if no adjustments are done, this is what Social Security could look like in the future.
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Why Benefits Could Be Reduced?
If you intend to rely on the program in 2035, keep in mind that you may receive fewer benefits than you anticipated. According to the 2021 annual report from the board of trustees, if no modifications are taken to address the trust fund deficiency, payments will have to be decreased by 22%.
For many retirees, a reduction in benefits would be a significant financial blow. According to the Social Security Administration, Social Security provides at least half of the income for 50% of senior married couples and 70% of elderly single people. Some experts believe that a significant reduction in benefits is unlikely.
“The repercussions of that catastrophe would be beyond devastating for everyone in the country,” said Joseph E. Roseman Jr., a Retirement Capital Planners Social Security expert and retirement planner. “You’re dealing with a national tragedy.”
That is why he believes Congress will intervene before 2035 to prevent such a drastic reduction in benefits. According to Mary Beth Franklin, a Social Security specialist and contributing editor for Investment News, a significant reduction in payments seems unlikely.
How To Balance The Budget?
Even though Social Security isn’t scheduled to run out of funds until 2034-35, various modifications have already been proposed to address the budget gap. Among these alternatives are:
- Raising the rate of payroll tax
- Raising the wages that are subject to Social Security taxes
- Increasing the retirement age
- Annual cost-of-living adjustments should be reduced.
- Benefit reductions
Continue reading to learn more about the specifics of each proposal and how they might affect Social Security if implemented. Cuts to Social Security may be prevented. But it doesn’t mean you should retire on those advantages alone.
In fact, it’s a dreadful one. If you’re a middle-income earner, those benefits will normally replace around 40% of your preretirement earnings. Most seniors require more money to live comfortably.
Even if you’re determined to live frugally in retirement, a 60% income cut may not be enough. So make an effort to save for retirement, even if it means starting little and gradually increasing your contributions. In other words, if you can only save 2% of your earnings this year, do so. However, that figure will rise to 3% next year and 4% the year after that.
The expense of retirement is expected to rise in lockstep with inflation. And, for many seniors, the cost of healthcare has been steadily growing for years. You’ll need income other than Social Security to support your various needs as a senior, whether benefit changes occur or not.
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