Let’s start with the bad news: The Social Security Trust Fund is on pace to be fully depleted by late 2032.

This is according to the latest annual report from the Board of Trustees at the Social Security Trust Fund. It’s been widely reported in the media this month, based on the official report from the Social Security Administration.

What happens then?

The way the law is currently written, once the Trust Fund hits zero, benefits are to be automatically reduced to match income generated through Social Security payroll taxes.

Unless Congress acts and changes the law between now and then, we’re on pace for an automatic 22% cut to Social Security benefits.

The Committee for a Responsible Federal Budget released a study called No State Spared, that did a state-by-state breakdown of what automatic cuts could mean for retirees locally.

According to the CRFB study, this automatic cut would reduce the monthly income of roughly 1 in 6 Nebraskans — over 335,000 total Social Security recipients.

The average monthly income cut for these Nebraskans would be $509.

There’s a lot of Nebraskans that depend on that money, and it would be a painful cut.

That’s a lot of bad news — so what can we do?

First things first, don’t panic. But also, don’t ignore the risk.

We believe three of the most important words above are “unless Congress acts.”

There’s a good chance Congress will not act this year. This year’s report is only the latest in a string of updates on the same problem. Congress has not acted yet, and it would be surprising to see them take urgent action today.

However, we believe Social Security is too important to too many Americans — including too many voting Americans — for Congress to fully ignore the issue.

The question is, what will they do, when, and how will that impact benefits in 2032 and beyond?

When it comes down to it, Congress has 3 big options:

• More tax.
• Less benefits.
• Both.

There’s a lot they can do, both in terms of increasing taxes paid into Social Security, and reducing future benefits. There’s no Goldilocks solution, but Congress is likely to come up with something less painful than automatic, across-the-board cuts.

It may take them until 2032 to get it done, but we do believe Congress will act.

What does that mean for our Social Security benefits?

Benefits won’t disappear. Under current law, benefits payments will only decrease to match payroll tax income, essentially forcing a balanced budget at the Social Security Trust Fund. They’ll still pay, just not as much.

And yet, an act of Congress could close some or all of that gap, for some or all recipients. The cuts may not be as bad as the current news coverage suggests, especially for those who depend on it most.

For most of us, we believe benefits will change, likely not for the better. There’s a good chance at least some of us will see smaller benefits in the future. Congress may have no option.

We don’t like this any more than you do.

We’re looking at potential cuts to our Social Security benefits, too.

However, it underscores the importance of good financial planning.

This can and should include diversifying the income sources you rely on in retirement.

Sure, you absolutely should take and enjoy every bit of Social Security you’ve paid taxes for, earned, and are qualified to receive.

However, the less you rely on it to get by, the less painful any potential cuts are likely to be. This has been our approach for a very long time. And is only likely to become more important moving forward.

Make the most of your other income sources, such as pensions, if you have them.

Consider what role your portfolio can play now and into the future. Perhaps you need to plan now for how your portfolio could fill the gap, if Social Security benefits are reduced later.

Also consider that in retirement, you have more control over your taxes than at any other time in your life. Effective tax strategy could help you keep more of your retirement savings, instead of sending it to the IRS — and help your nest egg go further.

It’s a lot easier for you to control how you react to this situation than for you to control how Congress acts. And thankfully, you have options.

If you’re concerned about the impact of Social Security’s future on your financial plans, absolutely bring it up in your next planning meeting with your advisor.

This is what we’re here for. To help you account for all these unknowns and potential risks and challenges, and plan for what you need to do in light of what’s going on.

You don’t have to buy into all the fear. But it’s probably worth knowing what’s going on, and planning accordingly.

This article was written for financial advisory clients of Asset Strategies. If you’re not yet a client and you’d like to connect with an advisor and see how they may be able to help you work towards your goals, request a Welcome Call here.