Americans could face a $500 monthly reduction in their Social Security payments by 2033 if no changes are made to address the system’s financial instability.
Experts have long warned that the Social Security system may become insolvent by the mid-2030s. This looming crisis would force the program to significantly reduce the payments it sends to beneficiaries.
The Social Security Administration has been grappling with a funding shortage, primarily due to the retirement of baby boomers and the shrinking number of younger workers contributing to the system. Earlier this year, a trustees report indicated that Americans could see their Social Security benefits decrease by 21 percent in 2033 if the funding issues persist.
A recent analysis by Motley Fool highlighted the potential impact of these cuts.
Currently, the average Social Security check for retired workers is $1,918.28. Assuming an estimated 2.6 percent cost-of-living adjustment (based on the average COLA over the past 20 years), the average Social Security payment should rise to $2,416.79 in 2033.
However, with a 21 percent reduction, that amount would drop by $507.53 per month. This would mean seniors relying on Social Security would lose approximately $6,090 annually.
“If the system remains unchanged, cuts will be inevitable,” said Kevin Thompson, a finance expert and CEO of 9i Capital Group, in an interview with Newsweek. “This would be a significant concern for those living on fixed incomes, as they would receive a smaller portion of their current paycheck.”
Since its establishment in 1935, Social Security has provided crucial support to Americans during their retirement years and to those with disabilities. In 2022, the program lifted approximately 22.7 million people, including 16.5 million seniors, out of poverty, according to the Center on Budget and Policy Priorities, a nonpartisan think tank.
Various solutions have been proposed to address Social Security’s financial challenges, but none have garnered widespread political support. Democrats generally advocate for higher taxes on the wealthiest Americans, while Republicans have suggested raising the full retirement age.
Thompson believes that neither political party will allow the predicted cuts to materialize, given the potential voter backlash.
“If you want to maintain your seat in Congress or the White House, you can’t let these cuts happen on your watch,” he said. “You’d be forever remembered as the president who slashed government pensions.”
Alex Beene, a financial literacy instructor at the University of Tennessee at Martin, agreed with this view. He noted that lawmakers are likely to consider additional government funding before permitting cuts that would affect millions of seniors relying on Social Security for basic living expenses.
“From a legislative perspective, it would be political suicide for any party to allow significant payment cuts to seniors on their watch,” Beene said. “While the financial data indicates that cuts are necessary, legislators will likely ensure that Social Security remains fully funded, even if it means increasing payments by printing more money.”
One potential solution is to raise the Social Security taxation cap, which is currently set at $168,600. Income above that threshold is not subject to Social Security taxes.
“This change would generate more tax revenue and enhance the system’s sustainability,” Thompson explained. “The extent of the cap increase should be determined by how it would affect the long-term viability of the system.”
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