There's a reason 42% of Americans are convinced that Social Security might one day cease to exist, according to 2023 data from Northwestern Mutual. The program is facing a serious decline in payroll tax revenue, its primary source of funding, in the coming years as older workers retire in droves.
The good news, though, is that Social Security is by no means at risk of disappearing completely. Even though the labor force might shrink in the coming years, it's not going away, which means that Social Security isn't, either.
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However, there has been talk of Social Security cuts once the program's trust funds run dry. And recent projections put the program's combined trust fund depletion date at 2035. That date could of course shift in the coming years, though -- for better or worse.
Of course, the idea of Social Security cuts may be scary to current and future retirees alike. But it's important to realize that Social Security has faced benefit cuts before, and they've never actually happened. So there's really no reason to panic this time around.
Lawmakers have options for preventing cuts
Social Security cuts have the potential to upend millions of people's finances. That's something lawmakers are aware of, so it's fair to assume that they'll do what they can to prevent benefit cuts in the not-so-distant future -- even if they do seem to be dragging their feet to some degree.
In fact, current and future retirees can take comfort in the fact that lawmakers have multiple options for avoiding Social Security cuts. One is to raise the wage cap for Social Security tax purposes. Currently, workers don't pay into Social Security on wages above $168,600, but lifting that threshold could pump more much-needed revenue into the program.
There's also the possibility of raising the Social Security tax rate, which is currently 12.4%. Is that something workers today might grumble about? Absolutely. But is it a viable solution? It sure is.
There's also the idea of moving full retirement age back by a few years instead of leaving it at 67 for workers born in 1960 or later. Some might argue that forcing workers to wait longer to be eligible for their complete monthly Social Security benefit is a terrible idea. But given a general increase in life expectancies, it's also not a totally unreasonable solution.
Prepare for benefit cuts, just in case
Social Security has been in dire financial straits before, yet the program has never had to resort to cutting benefits. So don't panic just yet or resign yourself to seeing your retirement paycheck shrink.
On the other hand, it's a good idea to prepare for benefit cuts, just in case. If you're retired currently, assess your expenses. Downsizing to a smaller home could make it so you're spending less monthly, allowing you to add to your savings. You could also consider part-time work, which may be easier these days thanks to the booming gig economy.
If you're still working, gearing up for Social Security cuts is a simple matter of saving more -- something you have an opportunity to do as long as you're earning a steady paycheck. Increasing your monthly 401(k) or IRA contributions by even $50 or $100 per month could leave you with a much larger cushion down the line, especially if you're investing your money aggressively in the stock market (which is something you should be doing to generate strong returns in your portfolio).
It's natural to be worried about the idea of getting less Social Security. But don't automatically assume your benefits are going to shrink. Lawmakers have never let that happen before, and that's something to take comfort in.
