Social Security serves as a financial lifeline for millions of retired seniors today. But unfortunately, that lifeline may be shrinking.
Social Security is facing a financial shortfall in the coming years as baby boomers exit the workforce in droves, taking away much-needed payroll tax revenue to fund the program. And while Social Security can tap its trust funds to make up for that revenue shortfall, once those funds run dry, benefit cuts may be on the table.
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Still, one scenario that's not on the table is Social Security's total demise. Even if the program is forced to implement cuts, future recipients should still be in line for the bulk of the monthly benefits they're scheduled to receive.
In spite of that, many workers today are of the impression that Social Security is at risk of going away completely. And while that thankfully is not in the cards, the reality is that telling yourself you won't get benefits in retirement might actually be a good thing.
When you need the push to start saving
Northwestern Mutual reports that the average 60-something's retirement savings balance is $112,500. That, frankly, is not a very large nest egg considering that that money might need to last 20 years or more.
The problem, though, is that many workers neglect their savings and assume they can just fall back on Social Security during retirement instead. But even if benefits aren't cut, it's important to realize that Social Security will only replace about 40% of your pre-retirement wages if you're an average earner. If you're an above-average earner, you can expect even less replacement income because of the maximum monthly benefit the program will pay out.
Meanwhile, the specific amount of replacement income you'll need in retirement will hinge on your lifestyle choices, and also, your health. But it's generally fair to assume that just 40% of your former salary won't cut it.
And that's why it's so important to build savings. Furthermore, if you convince yourself that Social Security won't be there for you in retirement, that might serve as the push you need to really start focusing on building your nest egg.
You may be socking away $100 a month for retirement right now with the assumption that Social Security will pick up the slack. But if you tell yourself there's no more Social Security, you might be motivated to start socking away $300 or $400 a month instead. That could make a big difference in your total savings balance over time.
It's OK to bend the truth
Because Social Security is primarily funded by payroll taxes, it's actually hard to make the program disappear completely. For that to happen, lawmakers would need to make the decision to stop taxing workers for Social Security purposes, and that's highly unlikely to happen.
But it's still not a bad idea to tell yourself that Social Security isn't going to pay you any benefits once you're ready to enter retirement. That way, you'll be more pressured to save on your own, which is actually a good kind of pressure to put on yourself.
