Social Security Cuts Are Looming. Here’s When Benefits Could Start to Shrink

At this point, you’ve probably heard the rumor that Social Security is about to go bankrupt. And thankfully, that’s not the situation at all.

Social Security gets most of its funding from payroll taxes. So as long as there’s an active workforce, those benefits can continue to get paid out to some degree.

The problem, though, is that Social Security is facing a revenue shortfall as baby boomers retire in large numbers.

In the coming years, the program expects to owe more in scheduled benefits than it collects in revenue. And it will need to tap its trust funds to avoid falling behind on its financial obligations.

Once Social Security’s trust funds run out of money, the program may have no choice but to cut benefits. And unfortunately, the timing of benefit cuts may be sooner than you’d expect.

When Social Security cuts could happen

The Social Security Trustees put out a report every year that offers an update on the state of the program’s finances. According to the Trustees’ most recent estimates, Social Security’s combined trust funds will be empty by 2035. So that’s when benefit cuts could arrive.

Right now, those cuts are estimated somewhere in the ballpark of 20%. But that number could change in the coming years, for better or worse. So could the timing of benefit cuts themselves, for that matter.

One factor that could impact Social Security cuts is the taxation of benefits, or lack thereof. President Trump has proposed getting rid of taxes on seniors’ Social Security income. If that change occurs, it will strip the program of expected revenue, which could lead to broad benefit cuts happening sooner.

What to do about Social Security cuts

It’s important to acknowledge that Social Security isn’t automatically doomed to cut benefits. There are different solutions lawmakers can implement to prevent those cuts from happening.

One idea, for example, is to increase workers’ Social Security tax obligation to pump more money into the program. Another is to eliminate the current wage cap that protects higher earners from having to pay into Social Security on all of their income.

Some lawmakers have also proposed making changes to full retirement age, which is when older Americans can collect their monthly Social Security benefits without a reduction.

But ultimately, each solution to prevent Social Security cuts has an inherent flaw. So it may be best to anticipate the arrival of those cuts, just in case.

The good news is that if you’re still working, you can take steps to prepare for them — namely, by boosting your savings to the best of your ability. You can also rethink some of your retirement spending if you’re already getting Social Security and it’s no longer feasible to build up a sizeable amount of savings.

Social Security cuts are a far better scenario than the program disappearing completely. But they could still deal a major blow to your retirement if you don’t prepare for them. So in this situation, it could actually be best not to think positively, but rather, to assume that Social Security cuts will happen at some point in time.

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