This US lawmaker just teased changes to America’s Social Security program — how will they impact you?
Tinkering with Social Security — the financial lifeline for millions of retirees — feels like a bad idea. With the program’s funding rumoured to be in jeopardy, even small changes could spell financial disaster for seniors who rely on it to bolster their income.
According to the Social Security Administration (SSA), about 68 million people will receive a monthly benefit in 2024, including nearly nine out of 10 people aged 65 and older.
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It’s also an expensive program that’s in danger of being unable to fund future benefits. In fiscal year 2023, the federal government spent $1.25 trillion, or 22%, of the total federal budget on the program. However, its expenditures exceed its income, and the Social Security Board of Trustees estimates that by 2035, it will be unable to pay full benefits to retirees. The board projects that Social Security will only be able to pay 83% of benefits in 2035 and, eventually, only 73%.
A majority of Americans view Social Security favorably, with 89% of those who receive benefits having a very or somewhat favorable opinion of the program, according to YouGov. But, because it’s expensive and facing funding issues, politicians periodically suggest making cuts to the program or eliminating it altogether. One of the most recent of these was Missouri Congressman Mark Alford.
“I think there’s a way when people are living longer, they’re retiring later, then on the front end we can move that retirement age back a little bit,” Alford said during a Fox Business interview.
How Social Security cuts could impact Americans
As is usually the case when Social Security cuts are mentioned, Alford’s comments have received widespread attention. Among those raising the alarm are Janet Baker, the executive director of KC Shepherd’s Center, a nonprofit supporting older adults in Kansas City.
“Yes, people are living longer but the reality is ageism is real and it’s already difficult for anyone over the age of 50 to find a job,” Baker told FOX 4 Kansas City. “Now you’re going to ask them to continue to work into their 60s, late 60s and early 70s.”
Pushing the retirement age later or cutting benefits could be highly detrimental to American seniors. Social Security accounts for about 30% of the income of people over 65, and many begin taking benefits before reaching full retirement age.
While some may argue that people should take responsibility for their retirement savings, most Americans at or near retirement age are largely unprepared to lose Social Security as an income source. A 2024 survey by Northwestern Mutual revealed that baby boomers face an average gap of $870,000 between what they believe they’ll need for retirement and what they’ve actually saved. For Gen X, the gap increases to $1.45 million. According to the Federal Reserve’s 2022 Survey of Consumer Finances (SCF), Americans 65 to 74 hold a median of just $200,000 in their retirement accounts.
It remains unclear if cuts will move beyond political rhetoric. President-elect Donald Trump’s stance on Social Security is ambiguous. While he pledged during his campaign not to cut benefits or raise the retirement age, he has hinted in some interviews that entitlement reforms might be necessary. It’s also possible that the government will look for other ways to solve the funding shortfall.
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How to prepare now for an uncertain future
Given the uncertainty surrounding Social Security, now may be a good time to start looking for ways to increase your retirement savings. Engaging a financial adviser can help you devise a plan that accounts for potential reductions or a later retirement age.
Start by maximizing contributions to employer-sponsored plans such as 401(k)s. Employer matches can greatly increase your nest egg over time. If you’re 50 or older, consider making catch-up contributions to your retirement accounts. Additionally, tax planning is crucial. Holding some of your retirement savings in Roth accounts can help reduce your tax bill in retirement, leaving you with more money for living expenses.
Creating a budget is also key. A budget can help you identify areas to save more now and manage your resources more effectively. If you need to cut expenses, consider high-cost categories like housing, food and transportation. For example, consider eating out less frequently or taking public transit more often to reduce costs.
If you’re nearing retirement age or already retired, consider the possibility of downsizing your home or moving to a more affordable location. You could also turn a hobby or passion into a side hustle to bring in some extra coin. Many work-from-home side hustles can help you avoid the ageism you might experience in a traditional workplace.
A reduction in Social Security benefits would be a difficult adjustment — and it could be disastrous for low-income Americans — planning and preparation can help lessen the impact. With a proactive approach, these changes don’t have to be insurmountable.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
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Publish date : 2024-12-22 01:52:00
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