Social Security’s Trust Fund Runs Dry in 2032. 3 Moves to Make Before Benefits Face a 22% Cut

If you’ve been following Social Security in the news, you may be aware that the program is facing a serious financial crunch. Once Social Security’s Old-Age and Survivors Insurance Trust Fund runs out of money, benefits could be in line for a 22% cut.

Based on the Social Security Trustees’ latest estimates, that trust fund could be out of money by 2032. That timeline could wiggle in the coming years for better or worse, depending on how much revenue Social Security ends up taking in. But at this point, it’s important to prepare for the possibility of reduced benefits.

Here’s how to gear up for a potential Social Security cut that may be only six years away.

1. Build your retirement plan around less Social Security income

Given the realities facing Social Security today, one of the biggest retirement planning mistakes you can make is assuming you’ll receive your full scheduled benefits. While there’s a good chance Congress will act before the trust fund is depleted, there’s no guarantee. Planning for a reduction in benefits could help you avoid unpleasant surprises later.

Take a close look at your retirement budget and income streams. Then ask yourself how dependent you are on Social Security.

If your monthly expenses would be difficult to cover after a 22% reduction in benefits, now’s the time to identify ways to close that gap. That could mean delaying retirement by a year or two or reducing future expenses before they become fixed.

2. Increase your retirement savings

The less you have to rely on Social Security in retirement, the more flexibility you’ll have regardless of what happens in Washington. To that end, even if retirement is only a few years away, consider increasing contributions to your 401(k) or IRA.

If you’re 50 or older, you’re generally allowed to make catch-up contributions in these accounts, allowing you to save beyond the standard annual contribution limits. And while you may be inclined to start pulling out of stocks if retirement is getting closer, it’s important to keep a decent chunk of your portfolio in the stock market so it can continue to grow.

3. Think carefully about when you’ll claim benefits

The uncertainty surrounding Social Security’s finances shouldn’t automatically push you into claiming benefits early.

One big myth about the program is that it’s running out of money, which isn’t true. It’s just that Social Security’s primary funding source, payroll tax revenue, is expected to shrink to the point where it can’t support future benefit payments in full.

But claiming Social Security early may not improve your financial situation. A better bet may be to wait until full retirement age (FRA) or even beyond to take benefits. For each year you wait to file past FRA, which is 67 for those born in 1960 or later, your monthly checks get an 8% boost, which could help offset future cuts that may arrive.

Now that incentive does run out at age 70. But it could still give your monthly checks a 24% boost before potential cuts are applied.

Of course, the right claiming strategy will still depend on your health, life expectancy, income needs, and overall retirement plan. But filing early simply because you’re worried about Social Security not having the money to pay you could permanently reduce your monthly benefits without protecting you from future legislative changes that may arrive to prevent cuts broadly.

The potential for Social Security cuts is scary, and it’s an important thing to plan for. By creating a more flexible retirement plan, boosting savings, and claiming strategically, you can put yourself in a stronger position no matter what happens to Social Security six years from now.

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