Why a 22% Across-the-Board Social Security Cut Could Hit Retirees by 2032

Quick Read

• Social Security faces a potential 22% benefit cut by 2032 as a shrinking workforce generates insufficient payroll tax revenue to cover scheduled payments.

• Congress has historically prevented broad Social Security cuts and could still act through tax increases or retirement age adjustments to avert the reduction.

• Retirees and workers should boost savings, maximize 401(k) matches, and invest in stocks to protect against a potential 22% income loss.

• Read More: Learn 7 ways to generate income with a $1,000,000+ portfolio (sponsor)

Social Security is a critical source of income for millions of older Americans. The average retiree today collects about $2,088 per month, or roughly $25,000 per year.

But if you’re on Social Security, you may not get to keep collecting your current check for much longer. Come 2032, Social Security could face a 22% benefit cut. And that’s something every retiree who relies on Social Security must prepare for.

Why Social Security is facing cuts

The reason Social Security benefits are at risk of being cut doesn’t boil down to corruption or anything nefarious on Congress’s part. No one has stolen money from Social Security through the years, despite what you may have read. Rather, the reason benefit cuts are a risk boils down to how Social Security gets funded.

Social Security’s primary revenue stream is payroll taxes. When people work, 12.4% of their earnings, up to a certain point, are taxed for Social Security. Workers pay 6.2%, and employers pay the same rate.

The problem is that the U.S. workforce is shrinking. Older Americans are retiring in droves, and thanks to lower birth rates, the number of replacement workers coming in won’t be sufficient to replace them.

As a result, Social Security won’t have enough revenue to keep up with scheduled benefits. And if Congress doesn’t implement a major change, whether it’s raising taxes or changing the age at which retirees can receive their payments in full, the program may have to reduce benefits by 22% as early as 2032.

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Benefit cuts aren’t a given

Of course, just because Social Security is at risk of benefit cuts doesn’t mean they’re guaranteed. Social Security has faced financial difficulties before, and Congress has never allowed benefits to be reduced broadly. The hope is that lawmakers can implement reforms to prevent cuts this time around, too.

Still, it’s important to be vigilant. If you rely on Social Security for retirement income, you may want to plan for a 22% cut. And if your income plan can’t survive a cut of that nature, the time to make changes is now. That could mean going back to work part-time and banking those earnings, or finding ways to reduce your expenses.

If you’re still working full-time, consider this a wake-up call to boost your retirement savings rate. The more money you’re able to sock away for your senior years, the more options you might have if Social Security cuts don’t end up being avoidable.

At the same time, make sure you’re making it as easy as possible to build retirement savings. If you work for a company that offers a 401(k) match, contributing enough from your earnings to snag it in full could allow you to score extra free money for your senior years.

Also, make sure you’re investing your savings wisely. If retirement is decades away, loading up on stocks could help you grow your money faster. All of these things could make a huge difference if Social Security isn’t able to pay benefits in full down the line.

Learn 7 Ways To Generate Income With A $1,000,000+ Portfolio

If you’ve saved over $1,000,000, this guide is for you. The last thing you want in retirement is to run out of money, you want your money to generate lasting income while you enjoy your life.

Now you can learn the strategies wealthy retirees use to fund their retirement with The Definitive Guide to Retirement Income from Fisher Investments. Download the guide today! (sponsor)

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