The recent news of declining Social Security Administration funding has many Americans concerned for their retirement.
The Old-Age and Survivors Insurance and Disability Insurance programs, which were originally designed for retired and disabled workers and their survivors, have been negatively affected due to the disruptions caused by the COVID-19 pandemic.
The combined depletion date of both programs was projected to be 2035 but is now 2034. This means that the Social Security Administration will only be able to pay between 75% and 78% to retirees and disabled beneficiaries if Congress doesn’t reach a new solution soon. For people a little farther from retirement, this means finding other means of securing a retirement nest egg, including participating in a 401(k), as well as opening accounts like a Roth or Traditional IRA.
While the news may seem shattering, not every retiring or disabled American will be affected. Read on to learn how you may be impacted by the Social Security cuts, and what you can do to take financial matters into your own hands.
The Social Security Issue
The COVID-19 pandemic has caused many negative effects across the globe. When global supply chains started to shut down, so did businesses. And because of that, America experienced record-breaking unemployment rates over the past two years, the lowest since 1969.
With more Americans being laid off, there was a surge in unemployment and retirement filings, meaning that the Social Security Administration was spending more in benefits than it was bringing in from payroll deductions. Now, with an earlier depletion date of its programs, the Administration will have to reduce approximately 25% of its benefits, hurting the 40% of American beneficiaries who rely on them. For people retiring after 2034, other means of retirement savings will need to be taken into consideration.
Will the decrease affect you?
According to Fox Business and the Congressional Budget Office (CBO), only the youngest eligible retirees will be impacted. Retirees that claim benefits early (age 62) will receive approximately 5-6.5% less each year than beneficiaries retiring at a normal retirement age. Standard retirees will receive approximately 8% each year up to age 70. Learn more from the CBO here.
Possible Social Security Solutions
While the Social Security Administration is selling Treasury bonds to keep the funds afloat for now, money is projected to deplete significantly within the next 12 years, which means that Congress must find a solution quickly.
Some proposed solutions from trustees include:
- Reducing annual increases in Social Security payments
- Increasing the retirement age from 67 to 69, and the early retirement age from 62 to 65
- Increasing the required number of years participants have to work before they can receive Social Security benefits
- Boosting payroll taxes from approximately 12% to 16% to fund the Social Security program
While no decision has been made officially, senators, such as Mitt Romney and Joe Manchin, have assembled a bipartisan group of experts to find a solution and recommend impactful changes.
The timeliness for a solution is pertinent. The longer Congress waits to make change, the less money the Social Security Administration will have over time. The sooner a decision is made, the sooner the funds can be adjusted without facing drastic decreases.
Taking Matters into Your Own Hands
Whether or not you’ll be receiving Social Security retirement funds, there are some steps you can take and accounts you can open to ensure your future nest egg is stable and secure.
- Whether you need to roll over a 401(k) or manage your own, opening a Traditional or Roth IRA allows you to invest your money in stocks, bonds, real estate, mutual funds, and more in order to increase your retirement funds. Visit the Slavic401(k) blog to learn about the differences between a Traditional and Roth IRA and how to use the accounts effectively.
- Make sure you’re participating in your employer’s 401(k) matching program if they have one. By maximizing contributions, you will double your retirement savings quickly with little-to-no effort. Learn more about employer-match programs from the Slavic401(k) blog here.
- Use a 401(k) calculator to determine how much money you will need to retire comfortably. Slavic401(k) has a blog describing the advantages of utilizing 401(k) calculators. Learn more here.
To learn about good financial habits, or using apps to help you manage your budgets, visit the Slavic401k blog.