With Social Security approaching a fiscal cliff that could eventually lead to sharp benefit cuts for 70 million Americans, the typical couple faces annual payout cuts of $16,500 in 2033, according to a recent Analysis From the Committee for a Responsible Federal Budget.
A middle-income single worker would see their benefits cut by $8,200 per year, according to a nonpartisan advocacy group that focuses on financial issues.
The analysis is based on a dual-income couple with median career earnings or individual annual wages of about $63,000 per year. Notably, it also assumes that the Social Security system is not repaired before its trust fund is projected to go bankrupt in 2033 — an outcome that many experts have long said is unlikely to have political consequences for either side of the benefit cuts.
The main Social Security fund, called the Old-Age and Survivors Insurance (OASI) Trust Fund, is a $2.6 trillion money pool that funds benefits and other program costs. Because Social Security is currently paying out more than the benefits received through taxes, thanks in part Huge waves of retiring baby boomersThe agency is now tapping the trust fund to provide promised benefits to retirees.
The clock is ticking
But without changes, the trust fund would be drained by 2033, resulting in an automatic 21% cut in monthly checks for beneficiaries regardless of marital or income status, the CRFB analysis found. That could prove disastrous for both current and future retirees, with many of the former already stretched financially and 4 in 10 seniors. live alone At an average Social Security monthly benefit of $1,907.
“The result is likely to increase the poverty rate for older Americans,” Shannon Benton, executive director of the advocacy group Senior Citizens League, told CBS MoneyWatch. “Given that low-wage workers are less likely to save for retirement than higher-income Americans, they are more dependent on Social Security in their later years.”
Chris Towner, CRFB’s policy director, noted that Social Security will become more volatile if lawmakers take longer to fix the program.
“It’s worth the wait to fix the program,” he said. “It can be fixed now with a 27% tax increase or a 21% benefit cut to all beneficiaries, while waiting would result in a tax increase of 32% and a cut of 25%.”
Reduction of social security by income
Although Social Security faces financial challenges, many Americans misunderstand what bankruptcy means for the program, experts warn. For example, 8 out of 10 US Adults worry that Social Security “will not be available” when they are old enough to receive it, a recent Gallup poll found.
But Social Security isn’t going anywhere, emphasized Nancy Altman, president of Social Security Works, an advocacy group for the program. Even if the trust fund were depleted, the program would continue to be funded by workers’ payroll taxes and pay about 79% of promised benefits, she noted.
“There’s a lot of misinformation out there, like the program is going to disappear, and that’s not going to happen,” Altman said. “That’s the best way to look at it [possible insolvency] is an action-forcing event. Not that they won’t benefit, but Congress really needs to act to avoid cuts.
If the trust fund runs out, retirees and other beneficiaries will still get checks, although their payments will yield about 79 cents for every $1 of promised benefits because of the funding shortfall.
That means a middle-income worker, earning about $63,400 a year, would see his Social Security payments drop from $3,275 a month before the bankruptcy to about $2,592 a month if the trust fund isn’t increased. Annually, that’s a loss of $8,200 in Social Security benefits.
So how likely are cuts to Social Security?
Altman of Social Security Works predicts that major benefit cuts are unlikely to become a reality. That’s partly because Social Security is seen as a “third rail” of politics — one that could prompt many Americans to vote against lawmakers who see the program as lighthearted.
“It’s literally unthinkable that Congress won’t act,” Altman said. “Every member of Congress will be voted out — people will be very angry.”
Already, lawmakers have floated several proposals on how to strengthen Social Security, ranging from raising taxes to cutting benefits, or a combination of the two.
So far, Vice President Kamala Harris and former President Donald Trump have both pledged to protect Social Security, but have not laid out a detailed plan for how they would do it, noted Benton of the Senior Citizens League.
“The Senior Citizens League wants to know what the presidential candidates will do, if elected, to address the bankruptcy issue,” she said.
A series of fixes
Trump has proposed eliminating income taxes on Social Security benefits, but his plan would actually be worsens the program’s financial outlook Because those taxes currently fund direct benefits. Without that tax, Social Security would be forced to cut benefits a year earlier than currently forecast, experts say.
Conversely, it is clear that Congress will have to take steps to strengthen Social Security to reduce benefits in 2033. Some lawmakers have proposed Increase in income limit On social security taxes. Currently, incomes above $168,600 are not subject to the payroll tax, meaning low- and moderate-income workers bear the brunt of funding the program.
Meanwhile, some Republicans have proposed Raise the US retirement age to 70, arguing that Americans are living longer and should therefore retire later. But many workers are forced to retire earlier than 70, often because of health problems or because their jobs are cut and they can’t find new work.
“Eliminating deprivation is a means to an end, and the end is providing economic security,” Altman said, adding that she and other experts want the program not only absorbed, but also liberalized in its benefit formula. . “Most experts believe the benefits are very small.”
Aimee Picchi is associate managing editor for CBS MoneyWatch, where she covers business and personal finance. She previously worked at Bloomberg News and has written for national news outlets including USA Today and Consumer Reports.
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