A recent report by the nonpartisan Committee for a Responsible Federal Budget (CRFB) reveals that if the current trajectory of the program remains unchanged, the average retired couple can expect a $17,400 decrease in their Social Security benefits by 2033. Contrary to politicians’ assurances of leaving the program untouched, the CRFB’s analysis indicates that these promises would actually lead to a comprehensive reduction in benefits.
This outcome is projected to occur as the trust fund supporting Social Security, specifically the Old-Age and Survivors Insurance (OASI) trust fund, faces insolvency within the next decade. The OASI trust fund is anticipated to deplete its reserves by 2033, coinciding with the retirement of individuals who are currently 57 years old, at the age of 72.
Impending 23% Reduction in Social Security Benefits
Consequently, the typical dual-income couple would experience an annual reduction of $17,400, while those relying on a single income would face a decrease of $13,100. For individuals with lower incomes, the impact would be even more pronounced, with reductions of $10,600 for couples and $7,900 for singles. Conversely, higher income earners would encounter reductions of $23,000 for couples and $17,300 for singles.
Based on the analysis, once the OASI reaches insolvency, its ability to distribute benefits will be limited to matching the incoming funding, resulting in a substantial 23% decline in Social Security benefits.
It is noteworthy that these figures are presented in current dollars. When accounting for inflation, adjustments would lead to reductions of $8,500, $14,000, and $18,500 for low-, medium-, and high-income couples, respectively.
The report’s authors emphasize that although the cuts may be relatively smaller for low-income couples, these reductions would constitute a larger proportion of their overall income. Consequently, senior poverty rates are projected to rise significantly upon the onset of insolvency.
The report also highlights a significant implication for future presidential candidates in 2024. Those who pledge not to make changes to Social Security are, in essence, endorsing an implicit 23% across-the-board reduction in benefits for the approximately 70 million retirees. This reduction is anticipated to take effect when the Social Security retirement trust fund becomes insolvent in a mere decade.
Several strategies exist to ensure the program’s financial stability: increasing taxes, raising the eligibility age, reducing expenses, or relying more on general revenue to bridge the funding gap. However, all of these options are fraught with political controversy.
At present, the eligibility age for full Social Security benefits stands at 67, marking a two-year increment since the program’s inception nearly 90 years ago. In October of the previous year, the agency unveiled a historic 8.7% upsurge in Social Security benefits for 2023, responding to exceptionally high levels of inflation.
Funding for Social Security is derived from payroll taxes collected from both employees and employers. Notably, the maximum earnings subject to Social Security payroll taxes for 2023 have been adjusted to $160,200, representing an increase from the previous year’s threshold of $147,000.