Many of today’s seniors rely on Social Security to pay their bills when they retire. But the program faces its share of financial challenges, which could peak in just over a decade.
In fact, 64% of today’s workers fear that Social Security will not be available to them throughout their retirement, according to a recent school principal’s survey. If you have similar concerns, here’s what you need to do.
The benefits do not go away
There are rumors that Social Security is on the verge of bankruptcy and disappearance, but this is not the case at all. What may happen at some point in the not-too-distant future is that interest cuts are implemented to make up for the impending revenue shortfall. But even in this scenario, the program will still be able to pay the bulk of the prescribed benefits.
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As such, you don’t have to fear that Social Security will pay you nothing during retirement, or start paying you interest but stop this practice constantly. Your monthly benefits may eventually get smaller if cuts happen, but even if Social Security cuts payments by 20% to 25%, you’ll still get the bulk of your money. So you can rest easy knowing this.
You will need income outside of Social Security
There is a chance that Social Security will not have to reduce benefits at all. If lawmakers find a way to pump more money into the program, Social Security may be able to keep up with scheduled benefits.
But even if that happens, it’s still a bad idea to assume that you’ll be able to cover all of your upper living costs on Social Security alone. If you’re a middle-income earner, you can expect your monthly retirement compensation to replace 40% of your income. But most seniors need roughly twice that income to live comfortably and cover ever-increasing healthcare costs.
As such, while you don’t need to lose sleep over the idea of Social Security disappearing in your life, you also shouldn’t rely too heavily on these benefits. Instead, you should make an effort to build your own nest egg so that you have additional income that you can count on.
Suppose you retire after 30 years and you have not yet set aside a dime for this. If you start saving $500 a month now and do so for the next three decades, you will end up with a nest egg worth about $680,000 if your investments yield an average annual return of 8%. That’s a few percentage points below the stock market average, which makes it a reasonable assumption to work with if you’re looking for a 30-year savings window.
We don’t know exactly what the future holds for Social Security. But what is now clear is that planning to live off those benefits alone is not a wise idea. And the more you build a nest egg on your own, the less you worry about which path Social Security will eventually take.
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