In a prosperous future, retirees should toast their golden years with drinks that have small shadows. Instead, they may worry about a vexing question: What if Social Security reserves collapse?
Such a scenario could play out within 10 years if Congress does not act. Without its intervention, Social Security’s Old Age and Survivors Insurance (OASI) trust fund is expected to run out by 2033. According to a public policy watchdog group, if that happens, dual-income couples retiring that year they could lose between $10,000. and $21,800 in annual benefits.
Don’t miss out
“Former President Donald Trump and Vice President Kamala Harris both said they would ‘protect’ the Social Security program. However, none has presented a plan to do so in a meaningful way,” the nonpartisan Committee for a Responsible Federal Budget (CRFB) said in a blog post on September 5.
The CFRB went a step further, noting that Trump “proposed changes that would worsen the program’s finances.” In July, he argued that his idea to eliminate partial income taxation of Social Security benefits would “actually increase the 75-year Social Security deficit by 25 percent.
Getting to the numbers
To prevent the next Social Security crisis, Congress will need to act. Some ways that might help might involve raising the retirement age or collecting more payroll taxes—less exciting prospects.
When the Social Security Act of 1935 was passed, life expectancy in America was 59.9 years for men and 63.9 years for women, according to the University of California, Berkeley. Fast forward nearly 90 years, and people are living longer: Life expectancy is 74.8 years for men and 80.2 years for women, according to the Centers for Disease Control and Prevention. People live about 25% longer and are retired for many of those years, and the program probably wasn’t originally designed to make payments for that long.
However, lawmakers remain coy, knowing that any changes to Social Security could lead to voter backlash. Since the 1980s, Social Security has been called the third rail of American politics. For generations, it’s been politically safer to drop the dose of funding down the road – even though it’s probably a box on a dead end.
The CRFB divides retirees into three income levels: low, medium and high. If the OASI trust fund runs out in 2033, the watchdog estimates that couples retiring on one income could lose $7,500 a year if they have low incomes, $12,400 in the middle range and $16,300 if they have higher incomes great. Meanwhile, dual-earner couples could lose $10,000, $16,500 and $21,800, respectively. The actual size of benefit reductions would vary among retirees based on age, work history and lifetime earnings.
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How to prepare for potential cuts
Leaving your fate up to the whims of politicians is often a crazy idea. Here’s how to protect yourself in the event of a Social Security funding nightmare.
Maximize your retirement plan: If your expected retirement date is 2033 or later, you will have at least nine years to top up your 401(k) or IRA (Individual Retirement Account) to offset any government shortfall. What’s more, starting the year you turn 50, the Internal Revenue Service allows you to contribute a little more to your retirement accounts. These “catch-up” contributions can be up to $7,500 per year for employer-sponsored plans above the usual $23,000 limit. IRAs allow a catch-up contribution of $1,000 in addition to the $7,000 limit.
Plan a move that saves money: Retirement opens up the possibility of relocating to a smaller space and perhaps to a less expensive area of the country. For example, if you can pocket $300,000 in equity for a home in Chicago, that’s more than enough to cover the average cost of a home in Milwaukee, which is around $206,000, according to Zillow. Located just 90 miles to the north, Milwaukee, like Chicago, sits on Lake Michigan and has a vibrant cultural scene. But it also boasts a lower cost of living, according to the Economic Policy Institute’s Family Budget Calculator.
Look out for new income streams: If you don’t retire between now and 2033, you still have plenty of time to expand your earning possibilities while holding down full-time or part-time work. Secondary disorders can actually be fun and stressful if they involve a little effort or an activity you enjoy. If you prefer to stay closer to home, renting a garage, parking space or spare room can also make a big difference to your bottom line.
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This article provides information only and should not be construed as advice. Offered without warranty of any kind.
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