In less than 10 years, Social Security’s Old Age and Survivors Insurance (OASI) Trust Fund is likely to be depleted, at which point, all beneficiaries would see a significant cut in payments.
The Peter G. Peterson Foundation, a nonprofit, nonpartisan organization dedicated to increasing public awareness of the nature and urgency of key fiscal challenges threatening America’s future and to accelerating action on them, is sounding the alarm on “the cost of doing nothing” to shore up the program with an updated report released on Nov. 27.
The organization warns that within the next decade, 70 million Americans will be in the OASI program, yet continued inaction threatens its viability. According to the most recent Trustees report, choosing to stay the course and do nothing to shore up Social Security for another decade would necessitate payroll tax increases or benefit cuts about one-fifth higher than if the Congress acted today. As the depletion of the Trust Fund gets closer, the program will require increasingly large adjustments to maintain scheduled benefits.
“With just 9 years to go before benefits are indiscriminately cut, now is the time for lawmakers to take action, shore up the Social Security Trust Fund for the long term, and guarantee the future of the safety net that so many rely upon,” the report concludes.
By law, Social Security can only pay retirement benefits to the extent that the balance in the trust fund is positive. In 2023, the income of the program covered about 89% of the benefits paid, while the trust funds’ reserves covered the remaining 11%. In the years ahead, that reserve balance will dwindle, and the Social Security Board of Trustees anticipates the depletion of the OASI trust fund in 2033.
At that point, benefits would be automatically reduced to match incoming revenues, equal to a 21 percent reduction in payments to all 70 million individuals who would qualify for OASI. The Trustees project that benefits over the rest of the 75-year projection period would represent about 73% of the amount scheduled under current law.
What would this cut mean for Americans? The report offers two examples:
- A dual-income couple of 58-year-olds who intend to work until 2033, the year they would each reach full retirement age, are classified as medium-income earners by the Social Security Administration (SSA) because their career-average earnings, which SSA calculates by averaging up to 35 years of an individual’s earnings, were about $64,000 per year in 2022 dollars (the latest year that the SSA indexed wages). If trust fund depletion arrives on schedule, they, as a couple, would see their annual benefits automatically cut by $16,500 relative to scheduled benefits. That would cost the couple almost $280,000 throughout their retirement, assuming an average lifespan.
- If the same couple averaged a wage of around $29,000 a year in 2022 dollars over the course of the 35-year period, which would classify them as low-income earners according to SSA, their benefits would be automatically cut by $10,000 a year. However, that lower cut would be a much larger proportion of retirement income. The SSA estimates that low-income earners receive about 80% of their retirement income from Social Security benefits, while medium-earners receive about 60%.
President-elect Trump said repeatedly during his 2024 candidacy that if elected, he would end the tax on Social Security benefits, as well as ending taxes on tips and overtime.
If the tax on Social Security benefits were to end without an offset, a recent estimate by the nonpartisan Committee for a Responsible Federal Budget (CRFB) found that the Social Security Trust Fund insolvency window would shrink to only six years.
And instead of 23% reduction in benefits in 2035 forecast by the Congressional Budget Office back in August (which would mean a $16,500 cut facing a typical couple retiring just before insolvency), Trump’s agenda being enacted would also bump it up to a 33% across-the-board cut to all benefits, according to the analysis released in October.
If enacted today, a 33% benefit cut would mean that the average 2024 monthly Social Security benefit check of $1,907 would be reduced by $629 per month to $1,278.
“President Trump’s proposals to eliminate taxation of Social Security benefits, end taxes on tips and overtime, impose tariffs, and expand deportations would all widen Social Security’s cash deficits,” the CRFB report said.
SEE ALSO:
• Second Trump Presidency: End of Tax on Social Security Benefits?
• Trump Social Security Plan Would Hike Benefit Cuts, Speed Up Insolvency: CRFB Analysis
• Growing Number of Adults Urge Congress to Address Social Security Insolvency