I’m not worried about cuts in social security. Here’s why | Smart Change: Personal Finance
I’m not worried about cuts in social security.  Here’s why |  Smart Change: Personal Finance

I’m not worried about cuts in social security. Here’s why | Smart Change: Personal Finance

(Maurie Backman)

You may have heard rumors that Social Security is running out of money. So here’s the good news – it’s not.

Social security’s most important source of income is payroll taxes – the ones we all see being taken out of our paychecks. And as long as those taxes remain in effect, the program can continue to run.

That said, in the coming years, Social Security expects revenue from the payroll tax to drop significantly as baby boomers leave the workforce in droves. The program has trust funds that it can use to keep up with planned benefits, but only for as long. When these funds run out of money, performance cuts will be a strong opportunity.

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Meanwhile, the Social Security Trustees recently predicted that the programme’s trust funds will run out in 2035. This means that benefit cuts could be on the table in a little over a decade.

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It’s something that worries many people, and it’s understandable. But I’m not worried about performance cuts for a big reason.

My pension does not depend on social security

As someone who writes about social security on a regular basis, I have long known that the program might have to cut back on benefits. Now many people are convinced that legislators will not let cuts happen. And the truth is, it’s hard to say whether they can be prevented or not.

That is why my pension strategy has always been to assume that I get very little money from social security, and compensate for that by building myself a solid nest egg. In fact, when I do my retirement income calculations, I actually work with the assumption that I get nothing from social security and that all the benefits that come my way are in fact just extra money I can spend for fun purposes, like leisure . and travel.

This strategy allows me to take control of my pension instead of relying on a program whose future is uncertain (and by that I do not mean that social security disappears, but rather that it is difficult to predict what benefits that will be worth down the line). And it also pushes me to work hard and save hard.

These days, I not only maximize my solo 401 (k) plan, but I also aim to deduct extra money from my earnings on a brokerage account whose investments are earmarked for retirement. On top of that, I hope so keep working in some capacity during retirement, partly because I enjoy what I do and want to be busy, but partly because I like the idea of ​​continuing to earn an income.

Many people retire and decide that they will never earn a dollar more. That’s fine with some people. But it’s not a scheme I’m comfortable with.

This is how you worry less about social security cuts

Cuts in social security are an option that current and future beneficiaries may have to contend with. If this is a concern for you, I suggest you push yourself to increase your savings rate and find ways to cut back on spending now to free up more money.

If you are about to retire without a very strong nest egg, I would also suggest that you postpone your workforce retirement a few more years and use that time to increase your savings. At the same time, you may want to start networking to set up part-time work within your field so that you have a different source of income when full-time work is no longer an option.

Of course, you can also look at working in a new field during retirement – one that interests you more than your current career. It is something many seniors do and it serves the common purpose of giving them joy as well as income.

The reality is that cuts in social security are a separate option, and we are not so many years away from potentially seeing benefits reduced. If you want to worry less about it, be prepared to rely less on social security. It really is that simple.

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