There are many baby boomers today who rely heavily on Social Security to make ends meet in retirement. And there’s a reason for that.
Pensions were very common when baby boomers started their careers. Through the years, though, a lot of companies did away with pensions, shifting the burden of retirement savings onto individual workers.
Some boomers were able to pivot and get on board with saving for retirement in a 401(k) or similar workplace plan. For others, saving for retirement just wasn’t in the cards.
As a result, a large number of current retirees need Social Security to stay afloat. And many near-retirees are banking on those benefits for income during their post-career years.
Social Security, however, is facing some financial difficulties, and that has many baby boomers worried that the program is running out of funds. But just how concerned should boomers be? Here’s the truth.
The situation isn’t great, but it may not be as dire as some people think
Social Security is facing a funding crisis because baby boomers are wrapping up their careers and exiting the workforce. Social Security relies on payroll tax revenue to keep up with its financial obligations. As boomers stop paying into the system and start filing benefit claims, it creates a major strain.
Social Security has money in its trust funds that can be used to help keep up with benefits. But once those trust funds are depleted, Social Security may have no choice but to reduce benefits on a broad level.
The good news is that Social Security is not in danger of disappearing completely. The reason is that younger workers will still be paying into the system, allowing it to survive.
However, younger workers aren’t expected to replace retiring boomers at a fast enough rate, leading to a revenue shortfall for Social Security. For this reason, benefit cuts may be inevitable if lawmakers don’t find a way to help boost Social Security’s finances. That’s something baby boomers need to prepare for now.
Don’t get caught off guard
If you’re a baby boomer who’s retired and you need Social Security to get by, benefit cuts could be a huge problem. Thankfully, they’re still a good number of years away.
According to recent estimates, Social Security’s combined trust funds are set to run out of money by 2034. At that point, the program only expects to be able to pay 81% of benefits, which amounts to a pretty substantial cut.
Knowing that, you have a good number of years to make a plan. That could mean relocating to a part of the country where living costs are cheaper, downsizing out of a larger home and investing your profits, or re-joining the workforce in some capacity.
Meanwhile, if you’re a boomer on the verge of retirement but haven’t made the leap yet, take the opportunity to build some savings. Work an extra year and boost your 401(k) contribution during that time so you’re able to retire with a bit more of a nest egg.
While Social Security cuts are not a given, you can’t assume they won’t happen. The sooner you prepare, the less damage they might cause.
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