If you are like most Americans, chances are good that Social Security plays an important role in your retirement plans. And you’re right to expect at least some income from the popular law program, although it may not be your only source of pension funds.
Unfortunately, if you hope to get the full amount of your promise benefits, you may be in for an unusual surprise.
In fact, the Responsible Federal Budget Commission has highlighted four pieces of really bad social security news that you should ask to think about how much you can rely on receiving – and hopefully encourage you to increase your retirement savings so that you are ready when you benefits are not everything you hope for.
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1. Social Security trust funds will run out of money over 15 years
The current financial trajectory of Social Security is not a good one. In fact, the program’s financial reserves are expected to be depleted within just 15 years. If the commission for a responsible federal budget indicates, that means the current 52-year-olds will simply reach full retirement age, while the youngest retirees will reach their 77th birthday today.
Retirees will not stop benefiting when the trust fund is low – but they will cut benefits. In fact, all Social Security beneficiaries will see an average cut of 21%, which will grow to as high as 27%. That is simply not sustainable for millions of Americans who are already struggling to make ends meet due to the minimal benefits they receive.
2. Social security accounts for emerging imbalances
The social security trustees indicated in front of the pandemic that Social Security would run deficits with a peak of $ 2 trillion in the next 10 years. That is about the equivalent of .7% of the gross domestic product (GDP) of the country and about 2% of the total wage of the country.
As bad as that sounds, the deficit will only get worse. By 2040, the deficits are expected to be equal to 3.5% of payments and 1.2% of GDP. And by 2094, the deficit will equal a total of 4.5% of the payment traffic and 1.5% of the country’s gross domestic product.
These are great figures and it will not be easy to make up the shortfall. Yes, the government could raise the tax rate to cover the deficit, but taking such a large extra amount of money from people’s salaries is probably not as popular as political ease.
3. The financial situation of the program is gradually deteriorating
As the commission declared a responsible budget, the actuarial deficit of Social Security is growing shockingly fast. The actuarial deficit is the difference between the Social Security income rate and the commitments that the program has allocated over the next 75 years.
In the years between 2010 and 2019, there was close to a 50% increase in the actuarial deficit. And in the last year alone, there was an additional increase of 15%. Sadly, COVID-19 is expected to grow the deficit even more substantially.
4. Time is running out to preserve Social Security
With no more than 15 years left until the coffers of the program run dry, lawmakers do not have much time to find a financial solution for Social Security. And unfortunately, the longer legislators wait, the harder it will be for two reasons.
First, the longer the delay before action is taken, the more taxes would have to go up if benefits had to be cut, because the trust fund would be withdrawn in the meantime. And second, as lawmakers wait to act, any changes should occur abruptly as phased in over time to change people’s retirement plans. It is much more difficult to make a sudden change in people who have made their retirement preparations based on their promised benefits.
What do you need to do to prepare for a future with smaller benefits of Social Security?
As you can see, future retirees have a lot to worry about when it comes to Social Security. With the finances of the program in such poor shape, the smartest course of action is prepared for the possibility of smaller controls for social security.
To do so, early retirees and even younger current retirees need to make sure they have a nest egg that is generous enough to cover any shortfalls in their retirement benefits. Younger people who are still working may increase their retirement savings targets, while both current workers and retirees today need to make sure they invest in a diverse mix of assets that expose them to the right level of risk given their age.
Investing in market-leading index funds, such as an S&P 500 index fund, can be one of the easiest ways to quickly diversify a portfolio for those who are not sure how to choose stocks, but there are plenty options around the nest eggs of pension you need so you do not rely on Social Security to your financial detriment.
