July 13, 2024

Analysis Predicts Potential $17,400 Benefit Reduction for Retirees by 2033

In just a decade, the average retired couple may face a daunting $17,400 reduction in their Social Security benefits. This alarming prediction stems from the dwindling funds of the Old-Age and Survivors Insurance (OASI) trust fund, which is projected to run dry by 2033. As a sobering reminder, today’s 57-year-olds will soon reach retirement age, while the youngest retirees today will be 72, witnessing the repercussions firsthand.

The Analysis states, “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.”

“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.”

In 2033, retirement dreams could turn into financial nightmares for different couples. Those with lower incomes might face a sobering $10,600 benefit reduction, while wealthier dual-income pairs could experience a hefty $23,000 cut. The catch? Even the more minor cuts could cast a dark shadow on the financial horizon for low-income couples, potentially propelling them into rising poverty levels when the OASI well runs dry.

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.”

The Committee for a Responsible Federal Budget (CRFB) said, “As the 2024 presidential campaign ramps up, candidates are facing pressure to pledge not to touch Social Security.” The CRFB pointed out that such a pledge is often framed as “protecting benefits” of beneficiaries.

On the other hand, “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.”

As the 2024 elections loom, Social Security takes center stage in the national spotlight. With the campaign trail heating up, presidential candidates tiptoe around the subject, wary of making substantial alterations to the program. In a surprising twist, President Joe Biden, during his February 7 State of the Union address, noted 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.”

“Amidst the election buzz, former President Donald Trump, a prominent Republican candidate, drew a firm line in the sand. He declared 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.” The battle lines are clear.”

“Save Social Security. Don’t destroy it. The Democrats are looking to destroy Social Security. We’re not going to let them do it.”

Adding to the intrigue, Florida’s Republican Governor, Ron DeSantis, also in the 2024 presidential race, made a bold declaration on Fox News in March: ‘We are not going to mess with Social Security as Republicans.’ Yet, experts aren’t holding back on their criticism of the candidates’ positions.

Whit Ayres, President of North Star Opinion Research, a center-right political polling entity, aired his views on CNBC. He hinted that the stage is set for a heroic figure to rise—a leader who can navigate the choppy waters and secure a solid financial future for the Social Security program. The call for a champion echoes in the political arena.

“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,” Ayres said.

Alex Durante, an economist at the Tax Foundation, drops a financial truth bomb: wrangling America’s spending challenges demands confronting heavyweight programs like Social Security and Medicare, accounting for a hefty two-thirds of the nation’s budget.

Durante said, “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.”

The struggle to keep Social Security robust has sparked diverse ideas, from hiking eligibility ages to upping taxes and dipping into general revenue. But beware, some of these solutions may cast a shadow over millions of Americans.

One controversial proposal tweaks the Social Security benefit calculation. Currently, it’s based on the highest 35 years of earnings. The suggestion? Bump it up to 38 years. The catch: this shift could pinch retirees, as those extra three years might mean lower payouts due to historically lower earnings.”

Enter another intriguing concept: an income-based twist to benefits. In the current landscape, higher earners reap fatter retirement benefits. The new proposal? Tinker with the formula, leading to potential reductions for the upper echelon of earners—creating a ripple effect that could touch many middle-income folks.

Right now, the Social Security stage opens for all at age 67, fueled by payroll taxes shared by workers and their bosses. Marking 2023, the earnings cap subject to Social Security is $160,200, a climb from last year’s $147,000. Change is on the horizon.

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