This Could Wreck Your Retirement Way More Than Social Security Cuts

Key Points

• Social Security is facing the possibility of benefit cuts in less than a year's time.

• Sweeping cuts could upend many workers' retirement plans.

• One mistake on your part could hurt your retirement finances more so than a broad reduction in Social Security benefits.

• The $23,760 Social Security bonus most retirees completely overlook ›

If you've been following the news on Social Security, you may have heard recently that the program is even closer to potentially having to cut benefits. And unfortunately, that's not just a rumor.

The most recent Social Security Trustees report contained a pretty dire update. The program's combined trust funds are expected to be depleted by 2034. Once that happens, Social Security may have to cut benefits to the tune of 19%, leaving retirees with just 81% of the monthly checks they'd normally be entitled to.

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If you're still working, you might assume that not being able to collect your Social Security benefits in full could seriously upend your retirement. But there's another factor that could cause you even more financial pain once your career comes to an end.

This mistake could cost you more than Social Security cuts

Clearly, the idea of losing 19% of your future Social Security checks is scary. But if you don't save decently for retirement, you could end up in an even scarier situation.

One thing to realize about Social Security is that even if benefits are not cut, they'll still only replace about 40% of your pre-retirement wages, assuming you earn a pretty typical salary. Now it's true that retirees can often get by on less money than they needed when they were working. But the general rule of thumb is to expect to need 70% to 80% of your former income in retirement -- not 40%.

For some context, the typical Social Security recipient today gets about $2,000 a month. If you're a higher earner, you might get more.

But either way, you cannot expect those monthly benefits to cover all of your retirement needs -- not even close. So if you don't make an effort to save for retirement, you could end up in a truly bad spot even if Social Security doesn't end up cutting benefits at all.

And to be clear, it's possible that Social Security won't have to move forward with benefit cuts. Though the program's finances are in trouble, lawmakers can look at different ways to avoid a sweeping reduction in benefits.

At that point, though, it'll still be on you to help ensure that you don't end up struggling. Relying on Social Security alone is not a good idea, no matter what happens with it.

Slow and steady wins the race

The idea of building a sizable retirement nest egg might seem daunting. But if you give yourself plenty of time to do it, you may be surprised at how seamlessly those 401(k) or IRA contributions fit into your budget.

Imagine you start saving for retirement at age 30, contributing $300 a month. If your portfolio gives you an 8% yearly return, which is a bit below the stock market's average, then by age 65, you could be sitting on about $620,000.

Now, let's say you want to limit your withdrawals from savings to 4% per year, which is what experts have long recommended. That gives you about $25,000 of income, which is a nice supplement to your Social Security and a nice cushion against benefit cuts if they do come to be.

It's too soon to know what will happen as far as Social Security cuts are concerned. But even if lawmakers can prevent them, you need extra retirement income -- period. The sooner you begin saving, the more confident you should feel that you'll be able to cover your financial needs in the future.

The $23,760 Social Security bonus most retirees completely overlook

If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income.

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View the "Social Security secrets" »

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