Social Security serves as a financial lifeline for millions of retired Americans. And there are a lot of retirees who don’t have access to any income outside of those monthly checks.
That’s why the idea of Social Security cuts is so scary. If retirees living on only Social Security were to lose 20% or so of their monthly paychecks, they’d clearly be in for a world of upheaval. And many would probably struggle to afford even basics like food and shelter.
Unfortunately, Social Security cuts are on the table given the program’s pending financial shortfall. But that doesn’t mean they’re set in stone by any means.
Why Social Security might need to cut benefits
If you’re wondering why people keep talking about Social Security cuts, it’s because the program’s Trustees themselves have said that a broad reduction in benefits may be inevitable.
Social Security gets most of its funding from payroll taxes. But in the next few years, a record number of older workers are expected to retire, taking critical revenue away from Social Security.
And if you’re wondering why incoming workers’ paychecks can’t just replace that revenue, the answer boils down to the fact that the rate of replacement is expected to fall short. Plus, as boomers retire, they’re expected to start filing for Social Security, putting a strain on the program’s limited resources.
When might Social Security cuts happen?
The timeline for potential Social Security cuts is subject to change. Last year, the Social Security Trustees projected that the program’s combined trust funds would be out of money by 2035. Once that happens, Social Security may have no choice but to slash benefits.
But the timing of those trust funds running out of money could change — for better or for worse.
President Trump has proposed eliminating taxes on Social Security benefits for seniors. And while payroll taxes provide the program with most of its revenue, taxes on benefits provide a portion as well.
If this provision becomes reality, it could spell relief for many older Americans in the near term. But it could also move up the timeline for benefit cuts.
Can lawmakers prevent Social Security cuts?
It’s certainly possible for lawmakers to prevent cuts to Social Security. The problem is that each solution for doing so seems to come with a very unappealing side effect.
One option is to force workers to wait longer before they’re eligible for their monthly benefits in full. Right now, those born in 1960 or later can claim Social Security in full at 67.
Moving that age back to 68 or 69 could be a boon to the program’s finances. But it effectively forces millions of Americans to work longer than they may have wanted to.
Lawmakers can also lift the wage cap for Social Security tax purposes. Right now, it’s $176,100, which means earnings beyond that point aren’t taxed to fund Social Security.
But imposing higher taxes on workers is unlikely to sit well, even if this change would only impact a small and clearly well-off portion of the population. And it would also invite the question of whether Social Security would then need to increase its maximum benefit to account for the larger sums workers are paying in.
So all told, while Social Security cuts are not a given, lawmakers won’t have an easy road preventing them. But if you’re worried about Social Security cuts, know this.
Social Security has faced the possibility of cuts before. And each time, lawmakers have managed to come up with a fix. So there’s reason to be hopeful that they’ll do something similar this time around.
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