With Social Security Cuts Looming, Here’s How To Supplement Those Benefits With Guaranteed Income

If you’ve been following the news on Social Security, you may be aware that the program is facing some serious financial issues.

How bad are those issues exactly? Pretty bad.

In the coming years, Social Security won’t have enough money to keep up with scheduled benefits unless lawmakers make changes that allow the program to boost its revenue. Those changes could involve additional taxes on wages or changes to the program’s full retirement age.

If lawmakers do not manage to find a way to prevent Social Security cuts, benefits may be slashed as early as 2033. That’s the latest date the program’s The Old-Age and Survivors Insurance (OASI) Trust Fund is expected to be able to pay 100% of benefits. Once that fund is depleted, Social Security may have to cut retirement benefits by 21%.

There is the possibility of lawmakers agreeing to combine Social Security’s OASI Trust Fund with its Disability Insurance (DI) Trust Fund. If so, that could stave off retirement benefit cuts for another year. But once both funds are depleted, retirement benefits may be reduced broadly by 19%.

If the idea of Social Security cuts sounds scary to you, one solution is to save well for retirement to compensate. But the money in your retirement portfolio is, unfortunately, not guaranteed to last.

The good news is that there’s another option you can look at for guaranteed income on top of Social Security. And it’s worth exploring that option if you’re worried that benefit cuts could wreck your senior years.

Why it could pay to supplement Social Security with an annuity

If you’re not familiar with annuities, they’re a financial product you buy through an insurance company that could provide you with guaranteed income for the rest of your life. What makes annuities so valuable is that unlike your savings, you can’t outlive an annuity.

Of course, if you invest your savings very conservatively and withdraw minimally each year, you can virtually guarantee that your nest egg won’t run out. But in that case, you may end up limiting yourself to a very small amount of retirement income.

An annuity could potentially provide you with a lot more income than a very conservative portfolio, allowing you to enjoy your senior years to the fullest.

Better yet, some annuities offer the benefit of fixed monthly payments. And having that predictable income is important at a time in your life when you may no longer be working.

To be clear, not all annuities offer fixed payments. But if your goal is to supplement your Social Security checks each month, a fixed annuity could be a good solution for you.

Protect yourself from benefit cuts — just in case

It’s not a given that Social Security will be forced to cut benefits. Lawmakers recognize that allowing the program to reduce that vital income stream could lead to a broad poverty crisis among the elderly. That’s something nobody wants, so there’s a good chance lawmakers will prioritize Social Security’s solvency in the coming years.

Still, it’s a good idea to set yourself up with income to make up for Social Security cuts in case they come to be. An annuity could fit the bill nicely, so it pays to learn more about how annuities work and familiarize yourself with the different types that are available.

Of course, annuities aren’t necessarily a perfect solution. While they could be a great source of guaranteed income, they tend to have the following drawbacks:

• High fees and commissions
• Limited liquidity if you want to cancel your contract
• Complex terms that may be hard to understand
• Inflation risk for annuities that provide fixed monthly payments

The more you read up on how annuities work, the easier it should be to decide if one is right for you. 

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