It has been well documented that the Social Security Old-Age and Survivors Insurance (OASI) trust fund is projected to be depleted by 2033, at which point, by law a 21% percent across-the-board benefit reduction would kick in.
According to a newly updated estimate from the nonpartisan Committee for a Responsible Federal Budget (CRFB), this would represent a $16,500 cut in annual benefits for a typical dual-income couple retiring at the time of trust fund depletion—which is actually $900 less than the previous year’s report from CRFB.
The Social Security program is currently paying out more in benefits than it collects in payroll tax and other revenue, and it is drawing down its reserves to cover the remaining cost of benefits. The program’s Trustees project that the OASI trust fund—which funds retirement benefits—will deplete its reserves in the fourth quarter of 2033. That is when today’s 58-year-olds reach the normal retirement age and today’s youngest retirees turn 71.
Once the reserves are depleted, the law limits benefits to incoming revenue, which essentially mandates what is currently calculated as a 21% percent across-the-board benefit cut for the program’s 70 million beneficiaries.
CRFB’s US Budget Watch 2024 report notes that while Vice President Kamala Harris has promised to “protect Social Security” and former President Donald Trump has pledged to “fight for and protect Social Security,” neither candidate has offered a comprehensive plan to address the impending solvency challenge.
“In fact, some of President Trump’s proposals—especially to end taxation of Social Security benefits—would significantly worsen these challenges,” the organization writes.
For the first year following insolvency, assuming current law, CRFB estimates inaction would lead to a $16,500 nominal benefit cut (or $1,375 per month) for a typical dual-income couple who retired at the time of trust fund depletion, or a $12,400 nominal reduction ($1,033 per month) for a typical single-income couple.
The actual size of the benefit cut would vary across retirees depending on their age, work history, and lifetime incomes, CRFB notes. For example, a low-income, dual-income couple retiring in 2033—as defined by the Social Security Trustees—would see a $10,000 cut to their benefits while a high-income, dual-income couple would see a cut of $21,800. Although the cut for a low-income couple would be smaller and reflect a 21% reduction in their benefits, the cut would be a larger share of their income.
While retirees will experience a 21% across-the-board cut to their benefits in 2033, the report says this automatic cut will grow over time—to 31% by 2098—due to the widening gap between the program’s benefits and revenues.
SEE ALSO:
• Social Security Trust Funds will be Exhausted by FY 2034: CBO
• Action Needed Now on Social Security Reform: GAO
• Absent Action, Typical Couple Faces $17,400 Social Security Benefit Cut in 2033
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.