What a 22% Slash to Social Security Would Actually Look Like for the Average Monthly Benefit
Millions of retirees live on Social Security alone, and a looming trust fund deadline puts that lifeline at serious risk. Here is what a potential benefit reduction could cost you each month and how to build a financial cushion before…
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There are many older Americans today who would not be able to cover their expenses without Social Security. And for people in that boat, potential benefit cuts could be catastrophic.
In a recent update, the Social Security Trustees said that the program’s Old-Age and Survivors Insurance (OASI) Trust Fund will only be able to pay scheduled benefits through the fourth quarter of 2032.
Once the OASI Trust Fund is empty, Social Security can still pay benefits, since it gets the bulk of its funding from payroll taxes. But without that trust fund, Social Security may be looking at a 22% cut, since incoming revenue is only expected to cover 78% of benefits.
While lawmakers have never allowed Social Security to cut benefits before, all working Americans today should prepare for a 22% reduction, just in case.
What a 22% reduction could do to the average check
The average monthly Social Security benefit today is about $2,086. If a 22% cut were to be implemented, the typical retiree would lose out on almost $459 a month, and the average benefit would shrink to $1,627.
As it is, an average monthly benefit of $2,086 only amounts to about $25,000 in annual income. And since many seniors today live only on Social Security, losing 22% of their retirement paychecks could spell the difference between covering bare bone expenses and not even being able to pay for basics.
How working people should prepare for Social Security cuts
Even though Social Security is not guaranteed to end up cutting benefits broadly, it’s smart to prepare for that possibility in case it happens. And one of the most effective ways to protect your retirement is to focus on building savings.
If you manage to retire with a decent chunk of money in an IRA or 401(k), you can take withdrawals every month in retirement to supplement your Social Security checks. You’ll also then have a pool of money to dip into if unplanned expenses come your way, such as home repairs or medical bills.
If you’re not in the habit of funding a retirement account yet, here are some steps to get started:
- Create a budget (you can get help from an app) that shows you exactly how you spend your money.
- Identify a few expenses you can cut out or reduce without upending your routine or denying yourself too heavily.
- Take the amount of money you’ve freed up and allocate it to your retirement savings.
For the latter, if you have a 401(k), the nice thing is that contributions come out automatically once you sign up through your employer. To stay on track in an IRA, set up automatic transfers so that money hits your retirement account every month after you get paid.
You need a plan either way
Social Security cuts are not a given. And even if lawmakers can’t prevent them completely, Social Security may not need to reduce benefits by 22%. A 10% cut, for example, isn’t great, but it’s not nearly as bad as a 22% reduction.
But all told, it’s best to assume the worst when it comes to Social Security cuts and have a backup plan. And there’s perhaps no better way to compensate for smaller checks than to have savings to tap.
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Maurie Backman has more than a decade of experience writing about financial topics, including retirement, investing, Social Security, and real estate. Her work has appeared on sites that include The Motley Fool, USA Today, U.S. News & World Report, The Washington Post, and Kiplinger.
Prior to becoming a full-time financial writer, Maurie worked in the financial industry trading distressed debt. She then changed course and spent a few years designing electronic toys. After a stint in content marketing and UX, she shifted back into writing and has since covered everything from the housing market to estate planning to Medicare.
When she's not busy writing, Maurie can be found hiking, walking her dogs, driving her kids to their various sports practices and games, and curling up with a good book. She cooks on occasion and bakes way too often.
