Social Security is approaching a major financial crisis, which could result in significant benefit cuts for approximately 70 million Americans. According to the Committee for a Responsible Federal Budget (CRFB), if the system is not reformed by 2033, a typical couple’s annual payments could be reduced by $16,500.
Similarly, a middle-income single worker may see their benefits reduced by $8,200 per year. This analysis assumes that the Social Security system’s trust fund, which is expected to become insolvent in 2033, is not repaired beforehand. However, many experts believe that given the political ramifications for both parties, lawmakers will be unlikely to approve such cuts.
The Old-Age and Survivors Insurance (OASI) Trust Fund, the primary source of Social Security funding, currently contains $2.6 trillion. This money is used to cover benefits and program expenses. Nonetheless, Social Security is now spending more on benefits than it collects in taxes, owing in part to the large number of retiring baby boomers.
As a result, the agency is using the trust fund to meet its obligations to retirees. Without changes, this trust fund will be depleted by 2033, resulting in an automatic 21% reduction in beneficiaries’ monthly checks, according to the CRFB. These cuts would affect all recipients, regardless of marital status or income level.
The impact of the cuts on Social Security beneficiaries
This potential reduction could be especially harmful for retirees, particularly those who are already struggling financially. In fact, four out of ten seniors rely solely on Social Security, which pays an average of $1,907 per month.
Shannon Benton, executive director of the Senior Citizens League, expressed concern about the consequences of such cuts, stating, “The result would most likely lead to an increase in poverty rates for older Americans.” Low-wage workers are less likely to save for retirement than higher-income Americans, so they are frequently more reliant on Social Security in their later years.
The longer lawmakers take to address this issue, the more unstable the Social Security system may become. Chris Towner, policy director at the CRFB, warned about the consequences of delay, stating, “There is a cost to waiting to fix the program.” It could be fixed right now with a 27% tax increase or a 21% benefit cut for all beneficiaries, but waiting would raise the tax increase to 32% and the cut to 25%.”
Despite these challenges, many Americans have a misunderstanding of what Social Security insolvency entails. According to a Gallup poll, roughly eight out of ten adults are concerned that Social Security “won’t be available” by the time they are eligible for benefits.
However, Nancy Altman, president of the advocacy group Social Security Works, stated that this is not the case. Even if the trust fund is depleted, payroll taxes will continue to fund the program, allowing it to pay out approximately 79% of the promised benefits.
Altman clarified that “the program will not disappear,” and that the potential insolvency is a “action-forcing event” that should compel Congress to take action. Although retirees would still receive checks, the amount would be reduced to approximately 79 cents on the dollar.
Altman and others believe that significant benefit reductions are unlikely. “It’s simply inconceivable that Congress would not act. People would be outraged if every single member of Congress was voted out.
Several proposals have been made to strengthen Social Security, including raising taxes, reducing benefits, or a combination of the two. Vice President Kamala Harris and former President Donald Trump have both pledged to protect Social Security, but neither has provided specific plans for addressing the system’s impending insolvency.
Benton of the Senior Citizens League emphasised the need for clarity, saying, “The Senior Citizens League would like to know what the presidential candidates would do, if elected, to address the looming insolvency issue.”
One idea proposed by Trump is to eliminate income taxes on Social Security benefits. However, experts argue that this plan would have a negative impact on the program’s financial outlook because those taxes currently fund benefits directly. Without them, Social Security may face benefit cuts earlier than expected.
In contrast, some lawmakers have proposed raising the Social Security tax cap. Currently, income above $168,600 is exempt from the payroll tax, so lower- and middle-income workers bear the majority of the burden of funding the program.
Other Republican proposals include raising the retirement age to 70, arguing that as people live longer lives, they should work longer. However, many Americans are forced to retire early due to health problems or job loss.
Altman and other experts advocate for not only stabilising the system but also increasing benefit levels, pointing out that current benefits may be insufficient for many retirees to achieve true economic security.
