Social Security's 2024 Trustees Report Is a Good News/Bad News Situation for Retirees
Social Security serves as a key income source for millions of retired Americans. Without those benefits, many seniors would struggle to cover even basic expenses like housing and food.
Each year, the Social Security Trustees release a report that reviews the state of the program's finances. This year's report contains some unfortunate news for seniors. However, the news also isn't totally bleak.
Image source: Getty Images.
The bad news: Benefit cuts may be coming
Social Security gets most of its funding from taxing wages. But as older workers wrap up their careers in the coming years and make a fairly rapid labor force exit, payroll tax revenue is likely to shrink.
Social Security can turn to its trust funds to keep up with scheduled benefit payments in the absence of adequate payroll tax revenue. (Think of those trust funds as the program's emergency fund of sorts.) But once those trust funds are depleted, Social Security may have to cut benefits -- unless lawmakers are able to come up with a way to prevent that unwanted scenario.
To be clear, lawmakers are invested in preventing Social Security cuts. But many of the solutions they've proposed to avoid them have negative repercussions of their own.
One suggestion, for example, is to push back full retirement age (FRA) for workers born in 1960 or later from 67 to 68 or 69. FRA is when workers can claim their complete monthly Social Security benefit based on their individual wage histories. Moving FRA back could help the program's finances, but it would also force a lot of people to work longer than they want to.
Meanwhile, the 2024 Social Security Trustees Report states that the program's combined trust funds are likely to run out of money in 2035. Once that happens, benefit cuts may be unavoidable.
The good news: Benefit cuts might happen later and may be smaller than anticipated
Clearly, any sentence with the words "Social Security cuts" in it is going to be bad news to some degree. But let's look at the silver lining in the latest Trustees Report.
First, previous estimates had Social Security's trust funds running dry in 2034. This year's report pushes that depletion date back a year, which gives current retirees who are heavily dependent on Social Security more time to adjust their spending and try to build savings to make up for future cuts.
Second, this year's Trustees Report projects that come 2035, Social Security will still be able to keep up with 83% of scheduled benefits. Clearly, that's not as good as 100%, but it's worth noting that previous estimates have called for benefit cuts of 20% or more. A 17% reduction sounds much better in that context.
Use your heads-up to your advantage
In an ideal world, Social Security wouldn't be facing benefit cuts. But unfortunately, the program is in a precarious financial situation. And if lawmakers don't act soon, benefit cuts may be inevitable.
The best thing to do, therefore, is assume that those cuts will happen and adjust your retirement plans accordingly. While that's not necessarily an easy thing to do, you at least have an 11-year window to rise to the challenge.
If you're still working, increase your 401(k) or IRA contributions by $50 a month this year, $100 a month next year, and so forth as you're able to. And if you're 50 or older, try to take advantage of catch-up contributions.
If you're already retired, cutting a few expenses could lead to modest savings. And joining the gig economy could put a more substantial amount of extra cash in your pocket that you can bank for a day when your Social Security checks shrink.
It's definitely a hard thing to see a so-called guaranteed monthly benefit get taken away to some degree. But use your heads-up to your advantage so your finances aren't completely thrown for a loop come 2035.
What stocks should you add to your retirement portfolio?
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now. The 10 stocks that made the cut could produce monster returns in the coming years, potentially setting you up for a more prosperous retirement.
Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $550,688!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.
The Motley Fool has a disclosure policy.
