Connect with us


Here’s how much your Social Security benefit could drop in 11 years, and 1 way to supplement your pension instead




Here's how much your Social Security benefit could drop in 11 years, and 1 way to supplement your pension instead

Millions of retired seniors receive monthly Social Security benefits. But in about eleven years, these benefits could be severely cut back. There really is no way around it. However, with smart planning on your part, social security cuts need not be a problem for you.

Why cuts to social security are coming

Social Security derives most of its revenue from payroll taxes. But in coming years, large numbers of older workers are expected to leave the workforce, depriving the program of the revenue it needs to keep up with planned benefits.

Social security cards.Social security cards.

Image source: Getty Images.

Social Security can draw on its trust funds for a period of time to continue paying benefits and avoid cuts. But once these trust funds run out, cuts may have to be made.

Meanwhile, the program’s latest Trustees Report states The Social Security trust fund depletion date is 2035. That’s an improvement over previous estimates that called for benefit cuts by 2034. But it’s a frightening thought nonetheless.

The average monthly benefit could fall by $400 by 2035

The average monthly Social Security benefit is approximately $1,915 as of April 2024. Let’s assume that Social Security benefits increase 2% annually over the next eleven years, the expected depletion date of the trust fund. That 2% is in line with the Federal Reserve’s inflation target. That would bring the average monthly benefit to $2,381 by then in 11 years.

However, Social Security may have to cut benefits by 17% once the combined trust funds run out of money. So in that case, the average senior could face a discount of about $405 per month, bringing the average monthly benefit over 11 years to $1,976.

That’s only about $60 more per month than what the average retiree receives from Social Security today. Even with 2% inflation, which is a fairly moderate level, that won’t be enough to keep up with regular spending.

All this is the bad news. The good news is that cuts to social security are hardly imminent. You have an eleven-year warning period to take steps to compensate for a broad reduction in benefits. And there is one step that is definitely worth taking.

Save now to make up for the cuts to social security

It’s important not to lose hope in the context of collecting your full Social Security benefit as a retiree. The program has faced financial challenges in the past, but lawmakers have always managed to get through them and avoid cuts to benefits. So maybe this time they can use that magic too.

However, it is much better to take an active role in offsetting benefit cuts. And you can do that by building a solid retirement nest egg through smart investing and consistent saving.

Suppose you are eleven years away from retirement age. Even if you have no savings now, if you were to contribute $600 a month to your retirement into an investment portfolio that produces an average annual return of 8%, which is slightly below the stock market average, you could end up with a nest egg to spare. worth approximately $120,000.

From then on, if you apply the 4% rule to your savings, you can withdraw €4,800 per year, or €400 per month. That could help you make up for the missing $400 in your monthly Social Security check.

Of course, it’s best to do what you can to save for retirement, in addition to what you need to make up for future lower benefits. But you should at least do your best to build up enough savings to offset the amount of money Social Security may have to take away.

Try to find the silver lining

Social Security’s financial situation is not the best, but it is not the worst either. While benefit cuts are not a great thing by any means, it is a much better situation than one where Social Security disappears completely.

But it still pays to do what you can to make up for potential benefit cuts. And while you may be powerless in the context of what’s happening with Social Security, it is absolutely within your power to set aside money each month for retirement savings purposes, invest your savings in stocks, and supplement your senior income accordingly.

Which stocks should you add to your retirement portfolio?

The analyst team at Motley Fool Stock Advisor just identified what they believe to be the 10 best stocks for investors to buy now. The ten stocks that made the cut could deliver monster returns in the coming years, potentially setting you up for a more prosperous retirement.

Just think when Nvidia made this list on April 15, 2005… if you had invested $1,000 at the time of our recommendation, you would have $635,982!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including portfolio building guidance, regular analyst updates, and two new stock picks per month. The Stock Advisor service has more than quadrupled the return of the S&P 500 since 2002*.

View the 10 stocks »

The Motley Fool has one disclosure policy.

Here’s how much your Social Security benefit could drop in 11 years, and 1 way to supplement your pension instead was originally published by The Motley Fool