6 Warning Signs You Are Not Prepared for Possible Social Security Cuts
Written by
John Csiszar
Edited by
Gary Dudak
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Social Security has been through numerous changes since its inception in 1933, but the biggest change of all could be right around the corner. Based on the most recent projections by the Social Security Board of Trustees, the Old Age and Survivors Trust Fund and the Disability Trust Fund, when combined together, will be depleted in 2034, at which point only 80% of benefits will be available to be paid out.
While legislative action could still change the outcome, this gives you a little more than 10 years to prepare for potential cuts. What are the signs that you may not be prepared for Social Security cuts? Here are some of the most obvious.
You Spend More Than You Earn
If you’re spending more than you earn, whether you are still working or not, you aren’t ready for Social Security cuts. Most retirees live off a fixed income, whether from Social Security, retirement funds or combination of both, so a reduction in income can be hard to recover from.
If your natural tendency is to spend more than you earn, you’ll likely find yourself struggling to get by if your Social Security benefits get slashed by 20% or more. If you can work on balancing your budget while you’re still working, however, you will be better positioned to manage Social Security cuts.
Your Emergency Fund Is Inadequate
If your future Social Security benefits are going to be cut, you may need some backup funding to get you through while you adjust your budget. If you have a small or inadequate emergency fund, it’s another sign that you might not be ready for the change.
Take the time now to boost up your emergency reserves to at least three to six months worth of your regular expenses, or possibly up to one year’s worth. This can help you both avoid going into debt in case of any financial emergencies and give you some extra cushion in case your Social Security benefits fall in the future.
You Don’t Have Outside Health Insurance
Medicare covers some of your medical expenses in retirement, but not all of them. If you’re counting on your Social Security income to cover the rest of your costs, you might be in for a bigger financial surprise than potential Social Security cuts.
Medical costs are generally one of the largest expenses that retirees face, and the average Social Security retirement benefit of $1,843.96 isn’t usually nearly enough to cover those bills. Getting outside health insurance is a good way to defend yourself against any reductions in Social Security.
You’re Relying on Current Social Security Projections
If you visit ssa.gov, you can get a current projection of your future Social Security benefits. Those projections are based on your earnings record and the age at which you will claim your benefits. However, they don’t factor in any potential cuts to the program.
While the Social Security Trustees currently anticipate cuts of 20% or more in about a decade, this isn’t a certainty, and thus it can’t be factored into the SSA’s projections. But if you’re relying on those estimates to be a guarantee, you could face a significant shortfall in your retirement budget.
You Have Credit Card Debt
Credit card debt is a retirement budget killer for a number of reasons. First, it indicates you have a tendency to overspend, which can wreak havoc on any retirement budget as mentioned above. But it’s also a drain on your cash flow. Not only will you need to spend to pay down your balance, you’ll also have to pay off your accumulated interest.
If you’re living on a fixed income and your Social Security benefits are cut, your debt could easily spiral out of control, potentially leading to insolvency. If you find yourself in credit card debt as you head into or begin retirement, you’ll need to focus on getting that debt paid off as soon as possible, well ahead of any potential Social Security cuts.
You Aren’t Willing To Be Financially Flexible
If you struggle to adapt to financial changes in your life, it’s a sign you might not deal well with Social Security cuts. If your income drops in retirement, you might have to become both creative and flexible in order to make ends meet.
For example, you might have to drop some of your more expensive travel plans, or you might have to consider moving to a more affordable city, state, or even country in order to balance your budget. If you’re not flexible with your day-to-day finances, you might have some more work to do to prepare for Social Security cuts.
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