A Major Social Security Deadline Is Approaching Faster Than Many Americans Realize

If you're counting on Social Security to help fund your retirement, here's some good news: Despite the rumors you may have heard, Social Security is not going bankrupt.

You may notice that when you get your pay stubs, FICA is deducted. That money helps fund Social Security, which is why the program can't go broke.

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But Social Security is facing a very serious funding crisis. And with a key deadline looming, lawmakers need to prepare to take action. So do individuals who expect to collect Social Security or who already rely on it.

2032 could mark a major milestone for Social Security

According to the Social Security Trustees' latest annual report, the Old-Age and Survivors Insurance Trust Fund is projected to exhaust its reserves at the end of 2032. If lawmakers don't act before that point, Social Security will only be able to pay about 78% of scheduled benefits using incoming payroll tax revenue.

To flip the number, Social Security recipients could be looking at a 22% benefit cut in well under a decade. And what makes this matter even more urgent is that the current 2032 trust fund depletion date is earlier than the Trustees projected in previous reports, giving Congress even less time to find a potential fix.

How to prepare for Social Security cuts

Social Security's projected shortfall does not mean benefit cuts are a given. Congress has historically stepped in when Social Security faced financial challenges, and there's a good chance it will do so again this time.

However, the longer lawmakers wait, the harder it may be to seamlessly integrate changes or new tax laws that can shore up Social Security's finances. Potential solutions include raising payroll taxes and increasing the full retirement age, which is when beneficiaries can claim their monthly checks without a reduction.

Since the future of Social Security is pretty uncertain, it's a good idea to prepare for potential cuts. If you're still working, your best move is to increase your retirement savings rate immediately. If you're currently putting 6% of your salary into your 401(k), try to push that to 6.5% to work your way up to 7% by the end of the year.

If you're still working but nearing retirement, stress-test your income plan against a potential Social Security cut. If it doesn't hold up, it could pay to delay retirement by a year or two to build a stronger cushion.

Finally, if you're already retired, try to trim expenses. And don't assume only drastic changes will move the needle. Reducing your spending in smaller expense categories could help tremendously, as could working part-time.

At this point, Social Security's funding crisis isn't a far-off problem. It's something lawmakers need to prioritize immediately, and hopefully they will. But it's best to prepare for Social Security cuts just in case.

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