Americans are increasingly worried about potential cuts to Social Security benefits. The program is facing a funding shortfall and may have to reduce benefits around 2033 unless Congress takes action to shore up its finances. This would impact over 70 million people who currently receive Social Security payments each month.
Recent cuts to the Social Security Administration’s funding levels and unsubstantiated claims of fraud are further eroding public confidence that the government will protect the program’s payouts. Mark Miller, a retirement expert and author, says “The public is very concerned about the future of Social Security.”
For those who believe Social Security cuts are inevitable, there are steps they can take now to improve their retirement plan and replace potentially lost income. One key move is to max out contributions to a 401(k) plan, including catch-up contributions for those 50 and older.
“A 401(k) is one of the best retirement savings tools available to most workers,” says Alicia Munnell, director of the Center for Retirement Research at Boston College. In 2023, the contribution limit is $22,500, with an additional $7,500 allowed for those 50+. Adjusting your portfolio’s asset allocation is another important consideration.
Having a larger portion in stocks, while more volatile short-term, tends to generate higher returns over time compared to bonds.
Facing Social Security funding cuts
Those with a longer investing timeframe can afford to be more aggressive.
Dividend-paying stocks provide another source of retirement income. “Owning dividend payers is a great way to create a sustainable passive income stream,” says Munnell. Dividend funds offer easy diversification.
Some retirees turn to annuities for guaranteed lifetime income, though these products can be complex and have high embedded fees. Working with a fee-only fiduciary financial advisor is recommended to determine if an annuity fits your situation. An advisor can also help optimize Social Security claiming decisions, make smart investments, and avoid costly mistakes.
“A good financial planner is worth their weight in gold when navigating retirement,” says Miller. Ultimately, the sooner you prepare for potential Social Security cuts, the better. Relatively small adjustments for younger savers can make a big impact, while older individuals need to be more aggressive.
The key is taking proactive steps now to build a more secure retirement future, with or without full Social Security benefits.
