What Will You Do When Social Security's Trust Runs Dry?

Got a calendar handy -- one that goes to the year 2036? It might sound crazy to schedule for an event that is set to take place in 24 years, but you should go ahead and do just that.

That's because the year 2036 will be monumental in the fiscal landscape of the nation -- it's when Social Security's much-discussed Trust Fund is estimated to run out of money. When that happens, it's anticipated Social Security benefits will have to be cut by about a quarter.

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That spells trouble for men who are 56 or younger and women about 59 or younger. If you are below those ages, Social Security's actuarial table expects you to still be alive when 2036 comes around -- putting you at risk of getting hit by that benefit cut.

How Long Will You Be Affected?

Of course, there's no way to know with certainty how long you'll live, but an actuarial table can get you in ballpark-guessing range. The chart below shows some estimates on how long you can expect to be around once the Trust Fund runs out:

Think about that for a minute. If you're 50 in 2012, you'll be 74 in 2036, when the Trust Fund is expected to be emptied. If you're still around then, you'll still have an estimated 11-plus years if you're male or, for females, 13 or more years of life -- and expenses -- ahead of you.

Back to the Grind in Your Golden Years

With your anticipated benefits cut, if you're not prepared when that day comes, you'll be faced with a stark choice: Live on less, or go back to work -- at 74.

Social Security's average retiree payout is currently in the neighborhood of a minimum-wage job. There's not much in the way of padding in that level of income, and losing a significant portion of it could be devastating to those who aren't ready.

The Alternative to Going Back to Work

If there is a bright side to the train wreck, it's that Social Security's collapse is 24 years away. That's still enough time for you to prepare for what the future has in store.

So, you can either beef-up your short-order cooking skills for when you have to unretire, or you can beef up your nest egg to compensate for the future benefit reduction. To make the latter route work, the time to start is now, especially if you don't have tons of cash to invest every month.

If you're both diligent about the effort and are willing to take the risks necessary to potentially earn decent returns, you can turn a modest, consistent effort into a decent nest egg. The table below shows what you could end up with 24 years from now, based on a handful of potential investment amounts and return rates:

Of course, as anyone who invested through the recent lost decade can attest, earning consistently double-digit returns is anything but certain. But if you take a closer look at that above table, what should jump out at you is that the amount of money you sock away matters at least as much as the rate of return you earn on that money.

So in essence, the act of saving and investing for the future itself is what will make the difference when it comes to covering Social Security's pending shortfall.

The choice is yours -- figure out how save a bit more now, or figure out how to live on less later. What you'll do when the money runs out depends in large part on which decision you make today. After all, if you don't start saving now, the choice will be made for you when your Social Security check gets reduced.

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