My Retirement Income Plan Doesn't Hinge on Social Security. You May Want to Follow My Lead

The average American probably has no idea what's in the most recent Social Security Trustees report. But since I get paid to write about Social Security, I'm very familiar with the latest update on the program's finances. And in a nutshell, it isn't great.

The gist is that Social Security's Old-Age and Survivors Insurance (OASI) Trust Fund will only be able to pay 100% of scheduled benefits until the fourth quarter of 2032. Once the OASI Trust Fund runs dry, Social Security can still pay benefits, since it collects revenue through payroll taxes. But that revenue stream is shrinking because the workforce is shrinking.

Image source: Getty Images.

Lower birth rates and stricter immigration policies are causing a shift where the ratio of workers paying into Social Security to those collecting benefits is declining. That's going to strain the system and cause a massive shortfall.

The Social Security Trustees say that, absent legislative intervention, the program may face a 22% benefit cut once the OASI Trust Fund is depleted. In other words, Social Security benefits are not at risk of disappearing entirely, but a significant cut is possible.

Now before you panic, it's worth stating that Social Security has faced financial difficulties before, and Congress has never allowed benefits to be cut broadly. But there's no guarantee cuts will be preventable this time around. That's something I'm preparing for, and you may want to do the same.

My retirement plan doesn't hinge on Social Security

Anyone can create a Social Security account and get an estimate of their future benefit. But given the potential for cuts, I don't want to put much faith in that number.

In fact, given Social Security's precarious finances, I'd rather not rely on the program for retirement income at all. To that end, each month, I send money into my retirement account before I get a chance to touch it.

Of course, this means that before I can spend money on new clothing, entertainment, or other extras, I have to make sure my bills are paid and my retirement savings are funded. Only once both of those things have happened am I allowed to dip in for fun purposes.

That might sound like a restrictive way to function, but it actually takes a lot of stress off my plate. The fact that I'm consistently funding my savings gives me peace of mind that if Social Security doesn't end up being fully payable, it doesn't destroy my retirement plans.

My goal for retirement is to use my savings to pay my essential expenses and have Social Security serve as bonus money only. That way, a benefit cut might be aggravating, but it doesn't have to be so stressful.

I also hope to work in retirement because I enjoy what I do and get bored easily. But to be fully transparent, my retirement income plan doesn't depend on earnings from a job. That's something I'd consider a bonus, similar to my Social Security check -- whatever it amounts to.

There's no need to give up on Social Security, but reducing reliance could help

Right now, the worst-case scenario for Social Security is a 22% cut. As we get closer to the OASI Trust Fund depletion date, that percentage could shift a bit for better or worse. But Social Security is absolutely not going away, and benefits should still be mostly payable once there's no more trust fund to tap.

Still, it helps me to know that I have a solid income plan that doesn't depend on Social Security. And if you want to feel better about your retirement, you may want to increase your savings rate so that your Social Security can serve as extra money, too.

If that's not possible, then make sure to at least save enough to absorb a 22% hit to your benefits. Increasing your IRA or 401(k) contribution rate by 1% each year between now and retirement may be enough to get you there.

Also make sure you're investing your savings strategically. Loading up on stocks is a great way to grow your portfolio when retirement is many years away.

If it turns out Social Security benefits aren't cut at all, the worst that would happen is you might end up retiring with more money than you need. And there are far worse problems to have than that.

The Motley Fool has a disclosure policy.