By 2033, the Social Security Trust Fund projects are expected to be depleted. Retirees should prepare for a 23% reduction in payments unless drastic measures are undertaken to reform the Social Security retirement program. Benefit cuts are an inevitable future of the Social Security Retirement fund. Future retirees should take place to prepare for the worst.
Start preparing a nest egg: Social Security has unveiled new changes
Future and current retirees should consider finding a way to supplement their income to prepare for budget cuts. While benefits are expected to increase next year due to the cost-of-living adjustment (COSA) statistic, this is not an indication that benefits won’t be cut. Start investing or reduce your spending now so as to increase your personal savings for retirement without reliance on the State.
Some experts recommend that people should consider relocation if possible. If you are able to, relocating to a state with a lower cost-of-living will help you to maximize your savings. If this is not possible, consider downsizing on your home. This not only will reduce property taxes and house up-keep, but will provide you with some additional income from the sale of your house.
Approaches to prevent total depletion: That’s what you can do now
While the prospect of the Social Security fund being depleted is daunting, the reality is this is unlikely to happen. Social Security is a cornerstone of voting policies and competing parties will need to provide a solution to the problem if they are to gain votes. It is also important to remember that Social Security is funded by taxes every year. This means that it will never disappear. If the fund was to be depleted, it simply means a permanent reduction in monthly payments, not the absence of them.
Congressional support is needed to avoid total fund depletion. If this was to become a reality, retirees would only receive 83% of benefits they were originally entitled to. It is also important to bear in mind that Social Security is intended to supplement retirement income and not fully fund it. Even if there was not a risk of fund depletion, future retirees should be making alternative retirement plans regardless.
Congress plan of action
Currently there exists debate on what congress should do to prevent total depletion of the fund. The most prevalent strategies being discussed are cutting benefit amounts; increasing the payroll tax; and increasing the age at which retirees can claim benefits. Currently none of these are favorable options. The topic is most likely to be a focus of the next elected president to hold office.
Options to save for retirement
Thankfully, there are multiple ways to save for retirement. Currently, the 401(K) plan and IRA are the most popular investment methods to save for retirement. The 401(K) plan is a plan sponsored by an employer. Many employee’s will match your contribution amount between 2%-4% of your salary. Contributions are tax-deferable which allows you to maximize on compound interest benefits.
IRAs can be opened by anyone, unlike a 401(K) which needs to be opened by an employer. Contributions to an IRA are also tax-deferable and contributions can also be tax deductible. Penalties incur if you withdraw from your count before the age of 59. There is also an annual contribution limit you can make to an IRA. There are many different types of IRAs you can choose from, however the traditional IRA remains the most popular.
Saving for retirement is a concern for Americans nationwide. Rising costs of living and salaries not increasing are making it difficult for many to put aside savings, especially for low-income individuals who live pay-check to pay-check. It is never too late to start saving and if you have not done so, it is important to consider the multitude of savings options available.
