"In the United States, Social Security’s old-age insurance program is nearing a fiscal tipping point. Policymakers should take the opportunity to craft a system that pursues justice rather than political expediency."https://t.co/jV1kqRRiDd
via @PublicDiscourse
— Jordan Ballor (@JordanBallor) August 20, 2024
Americans may see a $500 monthly cut to their Social Security payments by 2033 if no changes are made to address the system’s financial issues. Analysts have long predicted that the Social Security system will face severe shortfalls by the mid-2030s. This could force reductions in the amount disbursed to beneficiaries.
The Social Security Administration has been confronting a challenging scenario. More baby boomers are retiring, while fewer younger workers remain in the population to contribute to the system.
Social Security doesn't contribute to the national debt, it's an earned benefit that you pay for!
While Republicans and their Project 2025 allies want to cut benefits by raising the retirement age, Democrats have a plan to enhance them by making the wealthy pay their fair share. pic.twitter.com/WZxSvzmCQW
— Rep. John Larson (@RepJohnLarson) August 21, 2024
A trustees report earlier this year indicated that Americans might see up to a 21 percent reduction in their Social Security benefits by 2033.
This is due to ongoing funding problems. A new Motley Fool analysis highlighted the implications of this potential cut.
I visited the White House to celebrate the 89th anniversary of Social Security. Today, 70 million Americans rely on their earned benefits.
Democrats want to protect Social Security & enhance benefits by making the wealthy pay their fair share. It's time to act! pic.twitter.com/AjjwTEOOtN
— Rep. John Larson (@RepJohnLarson) August 19, 2024
With today’s average monthly benefit for retired workers at $1,918.28 and an estimated cost-of-living adjustment of 2.6 percent, the average benefit could increase to $2,416.79 by 2033.
However, a 21 percent reduction would decrease this amount by $507.53 monthly. This translates to roughly $6,090 less per year in benefits. “If nothing changes, there will need to be cuts to the current system,” said Kevin Thompson, a finance expert and the founder and CEO of 9i Capital Group.
“People will likely take home a smaller portion of their current paycheck.
Social Security benefits may be reduced
This will be a significant concern for those living on fixed incomes.”
Since its inception in 1935, Social Security has supported Americans during their retirement and helped people with disabilities.
In 2022, about 22.7 million people, including 16.5 million seniors, were lifted out of poverty due to their Social Security benefits, according to the Center on Budget and Policy Priorities, a nonpartisan think tank. Lawmakers have proposed several potential solutions to Social Security’s financial challenges, though few are politically popular. Some suggest higher taxes on the highest-earning Americans, while others propose raising the full retirement age.
Thompson believes that neither political party would permit the predicted cuts to benefits, given how voters would react. “If you want to keep your seat in Congress or the White House, you cannot allow these cuts to happen under your administration,” he stated. Alex Beene, a financial literacy instructor for the University of Tennessee at Martin, echoed this sentiment.
He emphasized that more government funding would likely be considered before significant cuts to senior benefits are allowed. “From a legislative standpoint, it would be political suicide for any party to allow significant cuts to payments to seniors,” Beene said. “While financial data indicates cuts will have to happen, legislators will likely ensure that Social Security remains fully funded, even if that means printing more money.”
One proposal to address the funding issue is to raise the Social Security taxation cap, currently set at $168,600.
Any income above this threshold is excluded from Social Security taxes. “This would bring in more tax dollars and allow for more sustainability,” Thompson suggested. “The new cap should be based on how sustainable the system would be with those higher income amounts.”
