By Naveen Athrappully
The average retired couple could see their Social Security benefits reduced by $17,400 in 2033 as funding for the program diminishes over the coming decade, according to a recent analysis.
The Social Security program is funded by the Old-Age and Survivors Insurance (OASI) trust fund. Trustees for the Social Security program project that OASI would deplete its reserves by 2033, the Committee for a Responsible Federal Budget (CRFB) pointed out in an Aug. 8 post. At the time, today’s 57-year-olds will hit the normal retirement age while the youngest retirees at present will turn 72.
“Upon insolvency, the law mandates that the OASI trust fund can only spend in amounts equal to incoming trust fund revenue, which means that all 70 million retirees, dependents, and survivors—regardless of age, income, or need—will see their benefits cut by 23 percent,” the analysis states.
“For a typical dual-income couple retiring in 2033, we estimate this would represent an immediate $17,400 cut in current dollar annual benefits and an immediate $13,100 cut for a typical single-income couple.”
Lower-income, dual-income couples that retire in 2033 could see a $10,600 reduction in benefits, while a high-income, dual-income couple could see benefits cut by $23,000.
CRFB pointed out that though low-income couples would see a smaller reduction, the cuts would represent a significant share of their income. As a consequence, poverty among this demographic can “rise significantly” once OASI becomes insolvent.
The estimates of benefit reductions are in current nominal dollars. “Adjusted for inflation, we estimate a typical dual-income couple would face a $14,000 cut, while low-income couples would face a $8,500 cut and high-income couples would face a $18,500 cut.”
“As the 2024 presidential campaign ramps up, candidates are facing pressure to pledge not to touch Social Security,” CRFB said while pointing out that such a pledge is often framed as “protecting benefits” of beneficiaries.
However, “any 2024 presidential candidate who pledges not to touch Social Security is implicitly endorsing a 23 percent across-the-board benefit cut for the 70 million retirees when the Social Security retirement trust fund reaches insolvency in just a decade.”
Political Stance on Social Security
The CRFB report comes as Social Security is a key topic of the upcoming 2024 elections. Presidential candidates have largely been reluctant to commit to making any major changes to the Social Security program.
In his State of the Union address on Feb. 7, President Joe Biden said that “some Republicans want Medicare and Social Security to sunset every five years.”
“I won’t let that happen. Social Security and Medicare are a lifeline for millions of seniors … If anyone tries to cut Social Security, I will stop them.”
Meanwhile, leading Republican presidential candidate, former President Donald Trump, said in January that “under no circumstances should Republicans vote to cut a single penny from Medicare or Social Security to help pay for Joe Biden’s reckless spending spree.”
“Save Social Security. Don’t destroy it. The Democrats are looking to destroy Social Security. We’re not going to let them do it.”
Florida’s Republican Gov. Ron DeSantis, another GOP candidate for the 2024 president, said in an interview with Fox News in March that “we are not going to mess with Social Security as Republicans.”
The stance of presidential candidates on the issue of Social Security has drawn criticism from experts.
In an interview with CNBC, Whit Ayres, president of North Star Opinion Research, a center-right political polling operation, said that the situation is now ripe for a hero to emerge who can put the Social Security program on a sound financial footing.
“It’s fundamentally irresponsible to say we’re not going to touch it when everybody who’s ever looked at the finances of the program recognizes that it’s going bankrupt,” he said.
Alex Durante, an economist at the Tax Foundation, pointed out that it is impossible to deal with America’s current spending situation without addressing programs like Social Security, which along with Medicare makes up over two-thirds of the country’s budget.
“The longer we push this out, it becomes more difficult to try to protect everyone that receives the benefits. It’s important that we tackle this sooner rather than later,” he said.
Social Security Proposals
Various measures have been proposed to keep the Social Security program healthy, including raising the age of eligibility, increasing taxes, and relying more on general revenue to fill any gap in funding.
Some of the proposed measures can negatively affect millions of Americans.
One proposal suggests changing how the Social Security Administration (SSA) determines benefit amounts. At present, the SSA looks at an individual’s highest 35 years of earnings to calculate the benefit.
The proposal suggests raising it to 38 years. This can hurt retirees who are paid less owing to the lower earnings of the additional three years.
Another proposal is an income-based benefit reduction. Currently, workers who earn the most money receive the most retirement benefits. The proposal would end up reducing the benefit of the top 25 to 50 percent of earners, thus potentially affecting many middle-income individuals.
At present, Social Security benefits are available for all Americans from 67 years old. The program is funded by payroll taxes collected from workers and their employers.
In 2023, the maximum amount of earnings that will be subject to Social Security is $160,200, up from $147,000 last year.