Worried about the future of Social Security?

This is a very common concern these days, so you’re clearly not alone in this. According to new research from the Alliance for Lifetime Income, Americans tend to claim Social Security earlier, mainly because they are not sure about the program’s solvency or they expect future cuts.

Considering the recent headlines, their worries aren’t for nothing. The 2024 Social Security Trustees’ Report, it’s estimated for the program’s primary trust fund to be depleted by 2033. With no reforms enacted by lawmakers, this might mean a 21% cut in benefits.

Let’s see what it means for your retirement plans.

How did we end up in this position?

The payroll tax revenues funding future benefits became an uncertain factor and it includes a huge number of Peak 65’s who reached retirement age and have already put a strain on the system. Economists explain that there is not enough current payroll tax revenue to pay the promised benefits in the future. This makes the exhaustion of the trust funds uncertain and concerning.

How can you prepare for possible shifts in 2025?

Details are very important, so, while the Social Security Trustees Report estimates a 21% cut, the scenario of the benefits slashed by this amount at once is less likely to happen.

What’s more possible is that the Social Security Administration would get a tranche of payroll tax revenue and pay out the full benefits as much as possible. In the course of a year, people will receive about 20% less in benefits, but in some months people will get paid fully and some get no benefit.

What could save the system? And why has nobody done it yet?

In this context, lawmakers need to act. Either they would need to raise taxes, raise the retirement age, or implement other provisions to reduce the shortfall, they need to do something. And why they don’t do it? Apparently, it’s very related to politics. Economists talk about how even the most courageous member of Congress can be avoidant when it comes to the so-called “third rail” and American politics is receiving zero support from their party leadership.

Of course, some options for solving issues aren’t popular with voters, namely, raising taxes. However, with lawmakers kicking the can down the road, it’s harder and harder to address the issue. There is an increasing recognition that something needs to happen and at some point, it will happen.

Most likely, it’s going to be in the 11th hour and even if that’s the worst-case scenario, it might be the most realistic one.

What can YOU do to handle uncertainty?

Waiting to claim can be hard with so many undeniable risks in the system. An Alliance research has shown that, however, claiming early out of the fear you’ll miss out by claiming later is pretty common.

Economists still advise that this is a wrong move, especially when you; ‘re close to retirement and you’re thinking about claiming you’re benefits exactly when you turn the right age. Professionals bet on the fact that there is a small chance that Congress will allow current beneficiaries or citizens who are in their 50s to be affected when they are already prepared for retirement with a certain level of Social Security benefits. Most economists and professionals in this field say that something like this is less likely to impossible to happen.

1. Claim later and bridge the gap

If you have already decided to delay, you can use some strategies to help you bridge the gap.

The most powerful thing you can do is to not stop working completely. While this is not realistic for everybody, from a financial perspective it allows you to delay claiming, as well as drawing down your assets. In fact, you will even add to those assets. You can either work full-time, or part-time, not keep it floating, neither adding nor subtracting from your assets.

One of the most important aspects of Social Security is the insurance value and the fact that it protects it against the loss of income for older ages, this is exactly what you can gain when you invest in annuities.

By delaying your claim and potentially using a bridge strategy, you can structure a drawdown of your 401(k) or an annuity. Bridging the gap, you can increase the foundational level of your Social Security income that you can rely on for the rest of your life.

2. Reduce Spending

Cut back on expenses as a way to stretch your savings further in case of worst-case scenario happens. You should start by reviewing your spending habits and identify what you could trim down. Start by tracking expenses and income to see where the money is going. Even small changes such as canceling subscriptions you forgot about or dining out less will go a long way. If you’re open to new, you can even consider downsizing your home or relocating to a state with lower living costs. Are You Retiring in 2025? Consider These 8 Cities

3. Save and Invest

With Social Security being uncertain, you should ramp up your investment and savings. You should aim to invest 10-15% of your income each year. This will help you reach a great amount faster.

Be Creative in Increasing Your Income. If the running out will happen, make sure you increase your income before retirement. You can get a second job or a side gig. If you’ve always had a business idea, start it. Do something you like to avoid burnout and use the extra income to pay down debt.

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4. Pay Down High-Interest Debt

Debt with a high interest such as credit card balances or personal loans is a huge financial burden in your retirement. These can eat your retirement income, so it’s crucial to pay them off as soon as possible.

Make additional payments as often as possible and once the high-interest debt is out of the way, you’ll be more flexible in budgeting for retirement.

5. Diversify Retirement Income

It’s risky to rely only on one income in retirement, especially with Social Security’s uncertainty. Diversify your sources to make sure in case your stream dries up, you still have sources to rely on.

Invest in income-generating assets such as dividend-paying stocks, bonds, index funds, or real estate. Consider reinvesting what you earn to maximize the profit.

Taking these steps before retirement will put you in a better position financially so you will be covered in case Social Security really runs out.

Keep in mind that the earlier you start, the more prepared you’ll be to live retirement years comfortably, no matter what happens to Social Security. Now it’s the perfect time to evaluate your Social Security strategy and stay informed about the changes, planning ahead and leveraging tools like online calculators or professional advice so you can maximize your benefits for a more secure financial future.

The choices you make today will have a lasting impact on your retirement years so take charge and make 2025 the year you prioritize your Social Security goals.

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