Cuts of more than 20% in Social Security benefits
With every day improving our financial literacy and figuring out the best ways to face retirement, it is important to be informed about the changes that will affect us and the best way to make the most out of the situation. It is a well-known fact that not enough Americans have savings that would adequately compliment their Social Security benefits, and that, even when they do have some, it would not be enough to cover their expenses.
Experts have estimated that most people would need to still have between 70% and 80% of their pre-retirement income as a bare minimum when they finally retire, but Social Security only covers about 40% of their pre-retirement income. And if this is worrisome for many (what happens to the other 40%, how do we cover this?), the situation may get worse soon and this gap will be even larger.
The Social Security Trustee’s report
This Social Security Trustee’s report is released every year by the Social Security’s trustees and its purpose is to communicate to the rest of institutions and citizens the state of the program and their predictions for the future. But lately these reports have been anything but encouraging.
The 2024 report was a bit more uplifting than before, as it recognized the efforts the current government is making to improve the economy and the collection strategies for Social Security, but the long and short of it is that benefits as we know them have a very short timeframe. The trust fund that supports Social Security is expected to run out of money as soon as 2035, a year longer than the 2023 report gave it, and the revenue streams that support it will not be enough to continue to pay out 100% of the benefits pensioners are currently drawing from it. Since the law does not allow Social Security to borrow in order to pay its benefits, the only solution will be to cut them to the maximum amount of money they can pay.
It is estimated that Social Security would have the money to pay out 79% of scheduled benefits if the Old-Age and Survivors Insurance (OASI) Trust Fund runs dry. This number is disheartening when we consider that most benefits are not that high to begin with and most pensioners that would really be affected by this are already beneficiaries of other hardship related benefits.
If the Old-Age and Survivors Insurance (OASI) Trust Fund is combined with the fund supporting the Disability Insurance program (which funds most of the hardship related benefits), when the money runs out the cuts in benefits will not be as severe, and retirees will be able to receive around 83% of their benefits. While still not enough to comfortably live on for many, the situation would certainly be less dire.
However this combination of funds has not been approved by lawmakers and it still would not solve the solvency problem of the program.
So, will these Social Security benefit cuts manifest?
It is very unlikely that the cuts will happen as presented in the Trustee Report. Lawmakers have been concerned with the future of the program since its inception and there have already been times when the legislation has needed to be changed to improve its funding or add revenue streams to continue its solvency, the last time in the early 1980s. The program is one of the most popular ones in the country and so seeing it fall will not help anyone. But being prepared for the worst is never a bad idea, as it will give retirees and other pensioners more options in the future especially if some of the cuts really do come to fruition.
