Warren Buffett saw this coming two decades ago.
“I basically believe that anything that would take Social Security payments below their present guaranteed level is a mistake,” he said at a 2005 Berkshire Hathaway meeting.
Fast forward to today, and America’s Social Security retirement trust fund is expected to run dry as soon as 2032. Retirees’ benefits could drop by roughly a quarter once it does, but the exact number depends on which government source you ask. While the trustees anticipate a 22% cut, the Congressional Budget Office (CBO) notes a larger cut, at 26%.
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Assuming the latter, and the current average retired worker benefit of $2,088.79, that means a $543 cut to monthly fixed income.
The good news is six years can be enough time to close a gap that size — but only if you start now. Here’s what to consider.
Social responsibility
In his response to shareholders, Buffett compared the Social Security system to the tax credits and incentives provided for children — another group unable to work due to age.
“I think that this is an extraordinarily rich country and that the people in their productive years can take care of those outside in both areas… a rich country takes care of its young and it takes care of its old,” he said at the 2005 Berkshire Hathaway meeting. “We try to provide good schools and health and everything for the young overall as part of our overall responsibility. I believe that a rich country should be doing the same for the older people.”
With benefit cuts looming, society may be falling short of this responsibility and breaking the implicit contract with workers who have paid into the system for decades.
To shore up Social Security, Buffett suggested raising the retirement age and eliminating the income cap on payroll taxes, currently set at $184,500.
However, given the political gridlock surrounding entitlement reform, these changes appear unlikely in the near term. As a result, many Americans may need to take proactive steps to safeguard their financial security in retirement.
Read More: Vanguard reveals what’s coming for U.S. stocks — and it’s raising alarm bells for older investors
Creating your own nest egg
With the future of the social safety net uncertain, it’s wise to build an independent retirement nest egg.
Consult a financial planner to diversify your income sources beyond Social Security. Consider increasing your contributions to 401(k)s, IRAs or other investment accounts. A Health Savings Account (HSA) can also serve as a tax-efficient way to save for medical expenses in retirement.
Delaying retirement is another option. Nearly 70% of Americans over the age of 50 have considered it, according to a survey by F&G.
While Social Security benefit cuts are not guaranteed, reducing your reliance on the program can help ensure a more comfortable retirement.
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This article originally appeared on Moneywise.com under the title: Warren Buffett once called cutting Social Security a ‘mistake.’ Now the CBO says the hit may be 26% by 2032 — $543 less
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
