The latest report from the Social Security Trustees confirmed a scenario that has many people worried: The program is facing a major financial shortfall that could force it to slash benefits come 2035. That's the year Social Security's trust funds are expected to run dry.
Once benefit cuts are implemented, seniors could see more than 20% of their Social Security income disappear. And that's a scary thought. As such, those who are reliant on Social Security now should take steps to prepare for what could be a substantial reduction in benefits. Here's how.
1. Rethink your retirement lifestyle
You might enjoy living in a certain part of the country and spending your days doing fun activities. But will that lifestyle be sustainable once Social Security benefits are cut? If not, now's the time to start making changes. That way, you can potentially boost your savings before that income stream is slashed.
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Think about parts of the country that are less expensive to live in, and consider relocating. Or swap some daily activities that cost money for volunteer work.
2. Sell a larger home while the housing market is hot
Right now, home prices are sky-high, and buyer demand is very strong. That's because the housing market sorely lacks inventory. And so if you have a larger home with more space than you need, now could be a perfect time to sell. The money you make from the sale of your home could serve as padding for your savings so you can better withstand a reduction in your Social Security benefits.
Let's say you own your home mortgage-free and can command $600,000 for it based on today's home values. If you manage to sell your home yourself without the help of a real estate agent, you'll pocket your entire profit. If you then buy a $350,000 home, you'll have $250,000 you can save and invest over the next 10 years or so, leaving yourself with more funds to access around the time Social Security cuts are expected to hit.
3. Go back to work
Many people work in retirement because it gives them something to do with their time. But in light of potential Social Security cuts, you might have to return to a job to compensate for lower benefits.
Let's say you're in your late 60s and will around 80 years old in 2035, when benefit cuts are anticipated. At that age, you may not have enough energy or mobility to hold down a job, whereas now, working part-time may be more than feasible. As such, you shouldn't wait for a reduction in Social Security income to go back to work, but rather, start generating some earnings this year.
It's good to prepare
There's still a chance that lawmakers will manage to find a way to prevent Social Security cuts. But that's not something you can count on. And so it's best to prepare for a reduction in your Social Security income -- and take steps to ensure that it doesn't result in a world of financial upheaval.
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