If you’ve been following Social Security news, you might have noticed the latest Trustee Report was quite pessimistic. The report highlighted Social Security’s looming financial deficit as a large number of older workers retire, stripping the program of essential payroll tax income.
Social Security has reserve funds to maintain scheduled benefits temporarily. However, once these reserves deplete, benefit reductions will become inevitable.
This could happen soon. According to the latest Trustee’s estimate, the combined trust funds might deplete by 2035, leading to benefit cuts.
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Benefit cuts aren’t set in stone. Legislators might find solutions to avert them, as they have in the past.
But I choose not to rely on that happening. I believe it’s wiser to assume my Social Security benefits will be lower than expected. I’m also taking steps to ensure a reduced Social Security check won’t be problematic.
My Plan
As someone who writes about retirement planning for a living, I’m well-versed in the subject. I’ve long known that heavily relying on Social Security for retirement income is unwise, even ignoring potential benefit cuts.
Given the likelihood of cuts and the general unpredictability of Social Security, my retirement strategy is straightforward: I aim to secure enough income to retire without relying on Social Security at all.
Some may argue that I’m being overly cautious since the program isn’t at risk of vanishing entirely. But I prefer to plan as if Social Security won’t be there, saving enough to live without it. This way, any benefits I receive will be extra money for hobbies or interests, like rescuing dogs or taking courses.
Regarding savings, I’m putting away as much of my income as possible after covering essential expenses. My savings are split between a solo 401(k) and a brokerage account.
I don’t place all my money in the 401(k) because of potential penalties for early withdrawal before age 59 1/2. I plan to work beyond that age, but it’s uncertain.
I also have a small Health Savings Account (HSA) that I intend to keep for retirement health expenses. Although I could use it now, I’d rather let it grow tax-free for future use.
The story continues
Additionally, I’m preparing to continue working in retirement to some extent. This is not only for financial gain but also to combat boredom. I’m not the type to sit on the couch watching TV all day.
My current career in writing should be viable unless automation takes over. I’m also considering backup careers, like becoming a Certified Financial Planner.
Don’t Let Social Security Cuts Ruin Your Retirement
The prospect of receiving less from Social Security than expected can be unsettling. That’s why I’m excluding Social Security from my retirement plans. Doing the same might benefit your financial and mental well-being.
If you have several working years left, aim to increase your retirement contributions to reduce dependence on Social Security. Consulting a financial advisor to create a savings plan that accounts for potential Social Security cuts can also be beneficial.
Lawmakers might intervene to ensure Social Security pays full benefits. Even so, it won’t alter my strategy. My goal is to support myself without Social Security. If I succeed, any benefits I receive will enhance my retirement.
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Here’s what I’m doing to plan for Social Security cuts. My strategy can also save your retirement. was originally published by The Motley Fool