Many Americans rely on Social Security to cover their expenses in retirement. However, there’s a potential issue ahead. The Social Security Administration (SSA) warns that by 2033, the program’s trust funds could run out, leading to a 21% cut in benefits.
This means if you currently receive $1,000 per month, it could drop to about $800. A $2,000 benefit could shrink to $1,600. For those depending on every dollar, this could be a tough situation. But the good news is that there’s time to plan and lessen the impact. Here are 3 ways to prepare for a Social Security shortfall.
Here are 3 Ways to Prepare for a Social Security Shortfall
1. Set Up a Separate Investment Fund
One way to prepare is by creating an investment fund specifically for this purpose. This fund should be separate from your other savings and investments. You can invest in mutual funds, stocks, or bonds that grow over time. The goal is not to touch this money until the Social Security reduction happens. By saving now, you can build a financial cushion to replace any lost benefits later.
2. Buy a Deferred Income Annuity
Another option is purchasing a deferred income annuity. This is a financial product that provides guaranteed income starting at a future date. For example, if you expect to lose $12,000 per year due to the Social Security cut, you can buy an annuity that will pay you that amount starting in 10 years. Some plans also allow benefits to continue for your spouse if something happens to you.
3. Delay Taking Social Security
The age at which you start receiving Social Security affects how much you get each month. While you can claim benefits as early as 62, the monthly amount is lower. If you wait until 70, your payments will be significantly higher. By delaying, you could offset any future reductions in Social Security.
Monthly Benefits Based on Claiming Age
| Age You Claim | Percentage of Full Benefit | Monthly Benefit if Full Benefit is $2,000 |
| 62 | 70% | $1,400 |
| 67 | 100% | $2,000 |
| 70 | 124% | $2,480 |
With potential changes ahead, it’s smart to be proactive. Whether Social Security benefits increase or decrease, having a plan will give you peace of mind in retirement. For more updates, check out the latest on the Social Security COLA 2025 and how it affects your benefits.
What If the Cuts Never Happen?
If Congress steps in and prevents the 21% cut, your extra savings or annuity won’t go to waste. You’ll have more financial security in retirement. That extra money could go toward travel, medical expenses, or even leaving a legacy for your loved ones.
Many retirees will also see changes in their Social Security benefits through cost-of-living adjustments. In fact, millions of retirees are set to receive higher Social Security benefits, which could help balance future reductions.
Since no one knows exactly what will happen, the best approach is to plan ahead. A financial advisor can help you explore these options and build a strategy to protect your retirement income.
FAQs
1. Will Social Security completely run out?
No, Social Security will not disappear entirely. If the trust funds run out, benefits may be reduced but not eliminated.
2. What if I can’t afford to save extra money?
If saving is difficult, consider working longer, reducing expenses, or exploring part-time income options to help offset any potential shortfall.
3. How does delaying Social Security increase my benefits?
For each year you delay beyond your full retirement age, your benefit increases, maxing out at age 70.