A new report from the Social Security Administration showing that benefits could be cut earlier than expected could raise alarms, especially among those who plan to retire in the next decade.
Social Security surplus reserves are expected to run out in 2033, a year earlier than previously estimated, according to Social Security and Medicare trust fund patterns. This means that the rights program will only be able to pay 76% of the benefits scheduled at that time if nothing is done to boost the fund.
“People looking to retire in the first 50 years or in the next 10 or 15 years can probably expect less than 80% of that benefit,” Kristen Carlisle, CEO of Betterment for Business, told Yahoo Money.
The economic consequences of the pandemic changed the prospects for Social Security funding. Employment, earnings, interest rates and GDP fell significantly last year and will gradually recover over the next two years. The pandemic also raised the mortality rate, slowed the birth rate and reduced it, which affected deficit projections, according to the report.
This has only aggravated the already hamstring agency.
“Social Security has paid more than they’ve been charged,” Scott Jones, Edward Jones ’retirement strategist, told Yahoo Money. “At some point in time, there will be no reserves left to take them out.”
Thoma said the government may adopt the same levers it achieved four decades ago as raising the full age of Social Security eligibility and payroll taxes, but it is a matter of prioritization and other pressing issues in the country. .
“There are a lot of things they see that are closer priorities in the short term,” he said. “It’s not like it’s a problem. It’s just a 2033 number versus a 2021 number.
Evaluate your retirement savings
Americans should consider the potential reduction in their retirement plans. Financial experts recommend a stress test of the retirement plan to get various results related to health, employment and living expenses, and when Social Security benefits are presented, which should be treated as a supplement to the save.
“[Social Security isn’t] it will be the only pillow for you after you stop working, “Carlisle said. The program was designed to provide only 30% to 40% of your pre-retirement income and not fully support retirement, he said. said Carlisle.
Given that the average individual Social Security benefit is about $ 1,500 a month (or $ 18,500 a year), the annual average would be $ 14,060 after the 24% reduction in the benefit. That means a loss of nearly $ 90,000 over a 20-year retirement.
To calculate the appearance of your benefits after the estimated reduction, use your Social Security statement. Take advantage of the estimated monthly benefits based on different presentation ages, and then reduce them by a quarter, Thoma suggested. This figure is what you can expect per month.
If that’s not enough, in addition to your own savings, savers over the age of 50 can contribute more than the annual maximum to their retirement accounts, known as recovery contributions. Younger savers should contribute regularly as much as they can to employer-sponsored plans or IRAs or Roth IRAs that can be set up independently.
“You want to make sure you take advantage of retirement scheduling as it exists before you turn 50,” he said.
Stephanie is a reporter for Yahoo Money and Dinner, a new personal finance website. Follow her on Twitter @SJAsymkos.
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