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

If you're planning to collect Social Security benefits in retirement, you may be aware that they play an integral role in many older Americans' finances. And whether you expect those benefits to cover most of your retirement expenses or simply supplement withdrawals from an IRA or 401(k), you probably want to get every last dollar in Social Security you're entitled to.

That's why you should be aware that Social Security is facing a key deadline. According to the program's Trustees, the program's Old-Age and Survivors Insurance (OASI) Trust Fund is expected to be depleted in 2032.

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The good news is that Social Security won't disappear once its OASI Trust Fund, which pays retirement benefits, runs out of money. But it's important to be aware of the consequence that might ensue.

Why 2032 could be a milestone year for Social Security -- and not in a good way

If you've heard rumors that Social Security won't be able to pay benefits come 2032, you can rest assured that's not true. Social Security is primarily funded by payroll taxes. So as long as there's an active labor force, there will be revenue coming into the program, allowing it to pay benefits to some degree.

The problem is that the labor force is shrinking. And Social Security is not expected to take in enough revenue in the coming years to keep up with scheduled benefits. That's why that 2032 OASI Trust Fund depletion date is so significant.

Once that trust fund runs dry, Social Security may have to cut benefits by 22%. For seniors who get most or all of their monthly income from Social Security, a reduction that size could be catastrophic. And even if you're only looking at Social Security as a means of supplementing your retirement account withdrawals, losing 22% of those monthly payments could seriously impact your future financial plans.

You need to prepare, even if lawmakers act

While a potential 22% Social Security cut sounds alarming, you should also know that the program has faced a similar financial crunch in the past. And were benefits cut? No.

Lawmakers could take action once again to prevent benefit cuts. But there's no guarantee that they'll be able to stave off cuts completely. That's why relying on your benefits in full may not be the smartest move.

A better bet? Create a financial plan for your retirement that does not rely on getting all of your Social Security.

You may need to increase your savings rate to compensate, or generate income in other ways, such as working on a part-time basis later in life. But it's best to map out an alternate universe where your Social Security checks don't come in completely.

And if you're nearing retirement, you should run through that exercise sooner rather than later. Even though lawmakers have time to address Social Security's financial shortfall before that 2032 deadline, the clock is ticking down. And you don't want to rely on Congress to protect your financial future.

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