Future retirement benefits for millions of retirees in the US might face heavy cuts because the Committee for a Responsible Federal Budget (CFRB) has warned if the congress fails to take action, the Social Security Old-Age and Survivors Insurance (OASDI) trust fund may be bankrupt by 2033. This financial turmoil might lead to a number of possible cuts up to 21%, which means that millions of retirees will lose thousands of dollars annually.
Why are social security benefits at risk
The Social Security program is currently faced with an increasing deficit, because it sends out more payments than it collects through payroll taxes and other revenue. To fill the void, the program has been drawing down its savings that are expected to run out by 2033. At this juncture, according to American Academy of Actuaries (AAA), Social Security Administration (SSA) will be left with no option but to choose between reducing benefits by 21% or increasing Social Security tax rates by 25%.
For retirees, such a situation may mean drastic loss in their annual income. For instance, CFRB estimates that a retired couple earning middle class income might lose up to $16,500 annually if they retire in 2033. On the other hand, a single retired person falling into the same category could see a deduction of $12,400 every year. Nevertheless, individuals who earn large amounts stand to lose more since the benefit amount is based on their thirty-five highest earning years.
Impact on high and low income Retirees
If the OASDI trust fund runs out, higher-income retirees may lose a lot. A high-income retired couple could lose as much as $21,800 every year while a retired single high-income person would have their benefits cut by $16,300 annually. These cuts would have an impact on their living standards even though they receive larger benefits.
The low-income retiree’s situation is no different. The CFRB reports that lower-income retired couples may stand to lose around $10,000 every year. Even though these deductions represent the same percentage decline which is 21%, this accounts for a much higher share of total income for low-income retirees making it harder for them to cater for their daily needs.
Proposals to prevent Social Security benefit cuts
To address the looming shortfall, organizations like the AAA have proposed several measures to strengthen the Social Security fund’s finances. One suggestion is to increase the Social Security tax rate from the current 6.2% to 7.75% for both workers and employers. This change could generate sufficient revenue to pay 100% of benefits through at least 2034, according to the AAA’s October 2023 report.
Retirement specialist Burt Williamson remains hopeful that a solution will be found, pointing to historical precedents. “Right now, there is about 10 years to fix the problem,” Williamson told Newsweek. He believes that, much like in the early 1980s when President Ronald Reagan established a bipartisan commission to address a similar crisis, another commission will likely be appointed in the early 2030s to devise a new plan.
“Fast forward into the future, this time to 2031 or 2032, and 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,” Williamson added.
The urgency for congressional action
With only about a decade left to prevent these projections, the clock is ticking for Congress to implement a solution that safeguards Social Security benefits. If no action is taken, millions of retirees could face significant financial challenges, losing a substantial portion of their income at a time when they need it most.
