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There are millions of older Americans today who get most of their retirement income from Social Security. And some retirees don’t have income at all outside of those monthly benefits.
That’s a problem, because Social Security is only designed to replace about 40% of the typical worker’s pre-retirement earnings. And for many seniors, a 60% pay cut is a tough thing to absorb.
But as hard as it may be to live on Social Security alone right now, things could even get harder for retirees who only have those benefits as income. That’s because Social Security is at serious risk of benefit cuts. And new data reveals that the timing of those cuts may be sooner than expected.
Social Security’s benefit cut timeline just got worse
The fact that Social Security may have to cut benefits due to a revenue shortfall isn’t breaking news. The program’s Trustees have been warning about potential benefit cuts for many years. Rather, what’s new is that the Trustees’ estimates on when those cuts might happen may be inaccurate.
The Social Security Trustees said last year that they expect the program’s Old-Age and Survivors Insurance (OASI) Trust Fund, which pays retirement benefits, to be depleted by 2033. From there, the Trustees said that only 77% of scheduled benefits would be payable.
But last month, the Congressional Budget Office (CBO) released its own analysis of the Social Security trust funds. And it projected that the OASI Trust Fund will be depleted in 2032 — a full year sooner than the Social Security Trustees’ projection.
That’s a problem, because under current law, the Social Security Administration (SSA) is not allowed to pay benefits that exceed the available balances in a program trust fund. The SSA also can’t borrow money for a trust fund or transfer money from one trust fund to another.
Now that said, lawmakers could vote to combine Social Security’s OASI and Disability Insurance Trust Fund. If so, according to the Social Security Trustees, that could push off benefit cuts by another year.
But even that doesn’t address the broader issue. Seniors today who get most or all of their income from Social Security can’t afford to have benefit cuts happen ever. So lawmakers truly, at this point, need to work together to try to prevent cuts from happening.
Prepare for the worst, just in case
There’s a good chance lawmakers will be able to prevent Social Security cuts, since allowing them to happen could spur a massive poverty crisis among older Americans. But it’s unclear as to how they might go about that, or whether they’ll be able to address the problem in time. So for now, planning for benefit cuts is a smart thing.
If you’re still working, the solution is pretty simple — save as much as you can so you have income to supplement your Social Security checks. If you’re already retired, try to pick up some part-time work to boost your income and savings. And also, start thinking about potential lifestyle cuts now, in case your income ends up shrinking.
With any luck, lawmakers will come to the rescue and prevent Social Security cuts. But since that’s not a given, planning for the worst is something everyone needs to do.