Social Security Benefit Cuts Could Be 6 Years Away. Here’s How Likely Cuts Are, and How to Prepare

If you’re among the millions of retirees who collect Social Security today, there’s a dire milestone looming: 2032. That’s the year when Social Security’s Old-Age and Survivors Insurance Trust Fund is expected to run out of money. Once that happens, benefit cuts could be possible.

But will Congress really let Social Security cut benefits? Here’s how likely cuts are, and how to prepare in case they end up happening.

A possible but somewhat unlikely outcome

It would be irresponsible to not prepare for Social Security cuts in the coming years. That said, it’s important to remember that Social Security’s current fiscal crisis is not the first one the program has faced.

Social Security has been in situations before where benefit cuts were on the table. But lawmakers always managed to find a way to prevent those cuts from happening. And there’s a good chance they’ll do the same this time around.

Congress actually has a number of options for preventing Social Security cuts. Lawmakers could vote to:

• Increase the program’s full retirement age, which could keep workers in the labor force longer, thereby boosting Social Security’s revenue
• Raise the Social Security tax rate from 12.4% to a higher number, thereby boosting revenue by having both workers and employers pay more into the program
• Lift or eliminate the wage cap so that higher earners pay more into Social Security

Of course, all of these potential solutions have clear drawbacks. Workers aren’t likely to be happy about having to wait longer to get their Social Security benefits in full or pay more taxes. But there’s a good chance lawmakers will do something to prevent a widespread reduction in benefits given the senior poverty crisis cuts could easily spur.

How to prepare for Social Security cuts

Even though lawmakers have a lot to lose by allowing Social Security to cut benefits, it’s important to prepare for that possibility, just in case. And your approach will clearly hinge on whether you’re currently retired or not.

If you’re not retired, the solution is fairly simple — aim to boost your retirement savings rate. The more personal savings you have, the easier it should be to absorb a Social Security cut.

If you’re already retired, building savings to offset Social Security cuts becomes trickier. But it can still be done.

If you’re able to work part-time, freelance, or start a business, you can use your income to build up a small nest egg. From there, you can invest your money in assets that can grow and pay you regular income.

For example, bonds are often a great choice for retirees because they pay predictably without exposing savers to the same risks as the stock market. Certificates of deposit can also be a smart choice when interest rates are up.

We don’t know if Social Security will manage to avoid benefit cuts in the coming years. There’s a good chance lawmakers will stop them from happening, but it’s best to assume the worst.

That way, if you find a way to build savings and your Social Security checks don’t shrink, you’ll have that much more money to fall back on for other purposes. And that’s not a bad situation to be in at all.