Social Security is edging closer to a financial cliff that could eventually lead to sharp benefit cuts for 70 million Americans, with a typical couple facing an annual payment reduction 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 the group, a nonpartisan advocacy organization focused on fiscal issues.
The analysis is based on a dual-income couple with medium career earnings, or individual annual pay of about $63,000 a year. Notably, it also assumes that the Social Security system isn’t repaired before its trust fund is projected to become insolvent in 2033 — an outcome many experts have long said is unlikely given the political consequences to both parties of slashing benefits.
The main Social Security fund called the Old-Age and Survivors Insurance (OASI) Trust Fund, is a $2.6 trillion pool of money that funds benefits and other program costs.
Because Social Security currently is paying out more in benefits than it receives through taxes, thanks partly to the massive waves of retiring baby boomers, the agency is now tapping the trust fund to provide the benefits promised to retirees.
The clock is ticking, But without changes, the trust fund is slated to be drained by 2033, which would result in an automatic 21% cut to beneficiaries’ monthly checks, regardless of marital or income status, the CRFB analysis found.
That could prove devastating to both current and future retirees, with many of the former already financially stretched and given that 4 in 10 seniors live solely on the average Social Security monthly benefit of $1,907.
“The result would likely lead to a spike in poverty rates for older Americans,” Shannon Benton, executive director of the advocacy group Senior Citizens League, told CBS MoneyWatch. “Given that low-paid workers are less likely to save for retirement compared to higher-income Americans, they are often more reliant on Social Security in their later years.”
Possible Solutions
To avert these potential crises, several solutions have been proposed:
- Increase Payroll Taxes: Raising payroll tax rates by approximately 3.5 percentage points could eliminate the projected deficit over the next 75 years.
- Eliminate Income Caps: Removing the cap on taxable income for Social Security could address about 73% of the projected shortfall.
- Adjust Benefits: Gradually raising the retirement age or implementing benefit cuts could also be considered, although these measures would likely face significant political resistance due to their impact on current and future retirees.
