The Social Security Administration has recently unveiled the latest prediction regarding benefit cuts. Luckily, the new estimates have delayed cuts by one year. At least, the situation has not worsened in 2024.
Unfortunately, if the situation does not improve Social Security funds will not have enough money to pay 100% of benefits by 2035. Even if it will not take place in 2034, it has not changed much.
How big could Social Security benefit cuts be?
The latest report from the Board of Trustees claims that there could be a 17% cut in scheduled benefits. So, if you have planned to retire at 62 or any other age in 2035, you could expect to get less money.
Therefore, retirees who receive Social Security in 2035 may only receive 83% of benefits. This may not be relevant if you do not rely on retirement or disability benefits to make ends meet.
However, you might be in financial hardship if you have a low income and need retirement benefits to avoid poverty or food insecurity. That is why it is advisable to make more contributions to your savings accounts and invest more.
Why is Social Security running out of funds?
Every year, the Social Security Administration continues paying more money to beneficiaries than it receives from taxes. Hence, this results in a lack of funds over time.
It is uncertain whether Congress will carry out new measures to prevent this from happening. What is a fact is that low unemployment rates, higher salaries, and a strong economy have improved Social Security trust funds in 2024.
Needless to say, most American workers aged 50 or older fear cuts could happen in 2035. Consequently, they hope there are important agreements in Congress to deal with this worrying situation. Making your retirement benefits larges is possible by delaying retirement until you are 70, so it could be helpful.
Why is it advisable to delay retirement until the age of 70 for larger retirement benefits?
Waiting until 70 to claim boosts your monthly benefit. Each year you wait past the full retirement age, you earn an 8% credit. This return is more than what typical fixed income investments offer.
The benefit increase is significant, especially for a long retirement. The average 65-year-old can expect to live nearly 20 more years. Waiting until 70 means a benefit 75% higher than at 62. This helps cover expenses in old age.
Delaying benefits until 70 also benefits married couples. It maximizes the survivor’s benefit. When one spouse dies, the lower benefit stops. The higher earning spouse then leaves a larger benefit for the survivor.
Lastly, waiting until 70 and using other retirement funds before then can lower taxes. Up to 85% of Social Security benefits can be taxed. However, withdrawing from IRAs or 401(k)s early on can reduce taxes later.
What strategies can individuals use to increase their retirement benefits, aside from relying solely on Social Security?
Here are some ways to boost retirement benefits beyond Social Security.
- Save in 401(k)s and IRAs. This builds extra savings.
- Delay Social Security. Waiting to claim boosts monthly benefits.
- Use a “Social Security bridge” strategy. Early retirement? Use savings. Later, switch to higher benefits.
- Work longer. Extra years increase benefits.
- Increase your income. Seek raises, promotions, or side jobs for a higher benefit.
- Push for policy changes. This strengthens Social Security.
- Maximize spousal and survivor benefits. This boosts overall income.