BIG UPDATE: Social Security Warning as Retirees Face $16,500 Cut
According to Newsweek, Retirees could face significant reductions in their Social Security benefits if the program’s trust fund becomes insolvent, the Committee for a Responsible Federal Budget (CFRB) has warned.
Projected Insolvency by 2033
The Social Security Old-Age and Survivors Insurance (OASDI) trust fund is projected to run out of reserves by 2033. Currently, the Social Security program faces a deficit as it pays out more in benefits than it collects through payroll taxes and other revenue. The program has been relying on its reserves to cover the shortfall, but those funds are expected to be depleted within the next decade.
If Congress does not take action to address this issue, the American Academy of Actuaries (AAA) predicts that the program will be forced to either cut benefits by 21 percent or raise Social Security taxes by 25 percent—or implement a combination of both.
Potential Cuts for Retirees
An analysis by the CFRB indicates that a retired couple with a medium income who retires in 2033 could lose $16,500 from their annual Social Security benefits, while a single medium-income individual could lose $12,400.
Higher-income retirees, who receive larger benefits based on their 35 highest-earning years, could face even steeper reductions. A high-income retired couple could lose as much as $21,800 annually, and a single high-income individual could see their benefits reduced by $16,300.
Even lower-income retirees would not be spared. A low-income couple could lose $10,000 per year, and a single individual might face a $7,000 reduction. Although these cuts would represent a 21 percent reduction in benefits, they would constitute a larger share of income for low-income beneficiaries.
Proposals to Address the Shortfall
Expert organizations, including the AAA, have proposed various solutions to address the looming insolvency. These solutions typically involve a combination of tax increases and benefit cuts. One suggestion is to raise the current 6.2 percent Social Security tax rate to 7.75 percent for both workers and employers, which could generate enough revenue to cover 100 percent of benefits in 2034, according to an October 2023 report by the AAA.
A Historical Precedent
Burt Williamson, a retirement specialist with PlanPrep, has predicted that history could repeat itself in addressing Social Security’s solvency issues. In the early 1980s, a bipartisan commission appointed by President Ronald Reagan developed plans that extended the program’s solvency well into the 21st century.
Williamson believes that by 2031 or 2032, a similar commission may be formed to provide new recommendations for sustaining Social Security. “The president at that time likely will have to appoint a new commission—history repeating itself—to come up with new findings that will give Congress another way to avoid blame for the changes that will be made,” he told Newsweek.
Without intervention, millions of retirees may face significant financial challenges due to reduced Social Security benefits.
