What should seniors do now if Social Security is cut in 2032? 4 options to consider
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The financial challenges surrounding the Social Security system have been building for many years, but the latest projections have given current retirees and those nearing retirement a more concrete date to watch for. The trust fund responsible for retirement and survivor Social Security benefits is now projected to exhaust its reserves in the fourth quarter of 2032, according to the 2026 Social Security Trustees Report — one quarter earlier than projected last year.
That doesn’t mean Social Security will disappear in 2032, however. Payroll taxes and other program income would continue flowing in even if the Old-Age and Survivors Insurance (OASI) Trust Fund reserves were depleted. Without legislative changes, though, the income from OASI would only be enough to cover just 78% of scheduled retirement and survivor benefits at that point, according to the trustees’ latest projections.
That said, Congress still has several years to address the Social Security funding gap, so a 22% reduction isn’t a guaranteed outcome. Still, seniors who rely heavily on Social Security may not want to base their retirement finances solely on the assumption that lawmakers will prevent it. However, the possibility of receiving less than expected makes this a good time to examine which financial tools could help close a future gap.
Find out how the right annuity could help cover costs in retirement.
What seniors should do now if Social Security is cut in 2032
There isn’t one strategy that will make sense for every senior. How much you rely on Social Security, along with your home equity, retirement savings, debts, and ability to continue working, can all affect which approach is best for you. But with more than six years before the projected OASI depletion date, these options could help create another source of income or reduce the pressure on your retirement budget:
See whether an annuity could provide another reliable income stream
Seniors with retirement savings may want to consider whether an annuity could help replace some of the guaranteed monthly income they could lose if Social Security benefits are eventually reduced. An annuity is an insurance contract that can turn a portion of your savings into a stream of payments. Depending on the annuity product, those payments may continue for a specified period or potentially for the rest of your life. That can make an annuity particularly useful for retirees who are concerned about covering recurring expenses with less Social Security income.
But annuities aren’t interchangeable, and they aren’t necessarily right for every retirement plan. Fees, surrender charges, payout structures, liquidity and other features can differ substantially between annuity products. And, using too much of your savings to purchase an annuity could also leave you with less readily accessible cash for emergencies. In turn, it may be worth evaluating annuities as one part of a broader retirement income plan rather than simply trying to replace every dollar of a potential Social Security reduction.
Explore the different annuity options available to you now.
Consider using a reverse mortgage to tap your home equity
If Social Security income eventually falls short of expectations, a reverse mortgage could provide another source of funds for seniors with significant equity tied up in their homes. A home equity conversion mortgage (HECM), which is the most common type of reverse mortgage, generally allows homeowners age 62 and older who meet the requirements to borrow against their home equity. Depending on the payout option, borrowers may be able to access the money through monthly payments, a line of credit or a lump sum.
That could be useful if you have substantial home equity but limited income outside of Social Security. And unlike a traditional home equity loan, a reverse mortgage generally doesn’t require you to make monthly principal and interest payments, provided that you continue to meet the loan requirements.
There are tradeoffs to reverse mortgages, though. Interest and fees accrue and reduce the equity remaining in the home, and borrowers must continue meeting obligations such as paying property taxes and homeowners insurance as well. So, if you’re considering this route, you should weigh the immediate income benefits against the longer-term impact on your finances and estate.
Learn what reverse mortgage options you may have now.
Explore debt relief if debt is consuming too much of your retirement income
A potential Social Security cut could be particularly difficult for seniors who are already using a large portion of their monthly income to make credit card and other unsecured debt payments. In this situation, addressing those balances before 2032 could be another way to prepare.
For those who can afford to repay what they owe, options such as debt consolidation or a structured debt management plan with lower rates and fees may help make the balances more manageable. But seniors with substantial debt that they can’t realistically repay may want to explore whether debt settlement or another form of debt relief makes sense.
Debt settlement can potentially reduce qualifying unsecured balances by 30% to 50%, on average, in return for a lump-sum payment on the account. However, there are significant risks and costs involved with this approach, including potential credit damage, debt relief company fees and possible taxes on forgiven balances.
Still, resolving an unmanageable debt problem now could reduce the amount of income that must be devoted to creditors later. And that’s an important consideration if Social Security ultimately provides less income than anticipated.
Find out how you can get rid of your high-rate debt for less now.
Consider working longer or delaying retirement if you still can
Working longer could provide another way to strengthen their finances before 2032, particularly for seniors who haven’t fully retired yet. Even an extra year or two of employment could mean additional earnings, more time to contribute to retirement accounts and fewer years spent drawing down existing savings.
Those who haven’t claimed Social Security yet may also benefit from delaying their claims, depending on their circumstances. Social Security retirement benefits generally increase for each month you delay claiming beyond full retirement age until age 70.
Of course, working longer isn’t realistic for everyone. Health issues, caregiving responsibilities and job availability can all make delaying retirement difficult or impossible. But for seniors who have the option, extending their working years could provide additional financial protection against future changes to Social Security.
The bottom line
A Social Security benefit cut in 2032 isn’t a foregone conclusion. Congress has time to address the program’s funding gap, and future projections could change before the trust fund reaches its currently projected depletion date. But seniors don’t necessarily have to wait for lawmakers to act before considering their own options. Tapping home equity with a reverse mortgage, creating another income stream with an annuity, addressing unmanageable debt through debt relief or working longer could each help strengthen retirement finances. Exploring those choices now may also provide more flexibility than waiting until a potential Social Security shortfall is much closer.
