For decades, retirees have been cashing monthly Social Security checks. But as life expectancy increases and birth rates decrease, there are more people collecting those benefits than paying into them. In April, the gov predicted its Social Security reserves would dry up by 2035. Some experts think COVID-19’s economic side effects (think: a payroll tax holiday, high unemployment, etc.) could make it even sooner.
Here’s what a struggling Social Security program means for your wallet.
Taxes could go up. Your tax dollars already pay for Social Security. You and your employer kick in about 6% of your income, up to a max of around $130,000. (If you work for yourself, you pay more...sorry.) One way lawmakers could help cover the Social Security shortfall is to increase those taxes – for everyone or just higher earners.
You’ll need to invest more. A depleted Social Security trust fund doesn’t mean you won’t be getting any money in retirement – it means you’ll likely get less. (The Social Security Admin estimates about 20% less.) So you’ll need to invest more of your own money to make up the difference. Because bingo nights don’t pay for themselves.
Related: How Much Do I Need to Retire?
theSkimm: It’s on you to build the financial future you want. No matter how much Uncle Sam gives you, it’s a good idea to sign up for your company’s 401(k) and contribute at least enough to get any match offered. (Hi, free money.) Or try to max out an IRA. Then hands off that cash until retirement. So you’ll have what you need when you need it.
Want more info about saving for retirement? Get it here.