At the current timeline, 2034 is the expected end date for scheduled survivors and retirement benefits. In this year, the reserves will be short, and the income received through tax will only cover around three-quarters of planned benefits.
What does this mean? At the moment, Social Security checks for the average retiree are around $1,500 per month. Should these changes take effect, checks would reduce to just over $1,140 per month. For married couples, it means $1,920 instead of $2,530.
If we look at the broader picture, those who retired between 2015 and 2020 are set to receive $1 million as a couple and $500,000 as an individual throughout their retirement. With the expected cuts, this would fall to $760,000 for couples and $380,000 for individuals. This amount (in real dollars) will double for millennials who reach retirement age around 2050. Individuals will earn $760,000 with the cut and couples around $1.5 million.
For many, these numbers are a worry, so how can you prepare for the smaller checks?
Hope for Congress Action
Firstly, many experts claim that Congress ‘needs’ to do something. One expert believes Social Security will be saved by later eligibility, higher taxes, and higher program costs for participants. Unfortunately, the bad news is the damage this could cause for low-income retirees. This section of people might mean working longer, saving sooner, or even making sacrifices in retirement.
If you still have many years ahead of you, start saving now. For millennials with a retirement date around 2050, you have thirty years, which could mean an extra $200 a month in savings. If retirement is fast approaching, one option is to work at least one year extra (potentially up to three years). You save more, but you also reduce the amount you need since retirement is now shorter.
Create a Plan
Do you need to take action to replace the lost income? While some won’t have to make many adjustments, others are facing significant losses. For the lowest three income quintiles, Social Security accounted for a substantial portion of earnings in 2014 (between 54% and 72%); this was between 18% and 34% for the higher two quintiles. If you still have time to act, consider financial advice, and create a financial plan to immediately counteract the changes.
Choose a Healthy Lifestyle
We recommend this tip regardless of retirement plans, but adopting a healthy lifestyle will allow you to work longer and reduce medical bills. If that healthy lifestyle means changing to a job you love, it could also mean a happier life. Top tips include:
• More fruits and vegetables in your diet
• No smoking
• Fewer fatty foods
• More exercise
• Stress management
• Lower alcohol consumption
Delay Social Security Claims
Interestingly, you may be able to offset the reduction by waiting until 70 to claim Social Security. The age at which there’s a benefit bonus. For every month you wait, the bonus percentage increases. For those born after 1960, delaying for 36 months means you’ll get 124% of your standard monthly benefit.
Example – If you were to receive $2,000 per month, this would decrease to $1,520 with the planned cuts. Although waiting would bring $1,880 per month, it’s a much smaller decline than taking benefits straight away.
We know it’s hard, but some people are taking no action at all. Funds are set to run out in 14 years, and there’s a strong belief that the government will take some form of action to protect Social Security benefits. Do you stick or twist? It depends on your level of risk tolerance; we’re sure some will take action just in case. Even if the planned cuts are unnecessary in the end, taking action still gives peace of mind.