The Average Social Security Check Loses $459 a Month in 2032 Unless Congress Acts. Here’s What’s on the Table
Social Security's trust fund has a deadline, and Congress is running out of time to act before retirees feel the pain. The fixes on the table each come with serious trade-offs that could hurt the very people they aim to…
This post may contain links from our sponsors and affiliates, and Flywheel Publishing may receive compensation for actions taken through them.
If you’ve been following Social Security in the news, you may be aware that the program is in the midst of a financial crisis. And it’s not going to get better unless lawmakers intervene.
In a nutshell, Social Security’s main revenue stream, payroll tax income, is declining due to a shrinking workforce. That means Social Security won’t be able to pay benefits in full for much longer.
The Social Security Trustees recently reported that the program’s trust fund is expected to run out of money by 2032. At that point, Social Security benefits could face a 22% cut.
The average monthly Social Security benefit among retirees today is $2,088. If a 22% cut comes through, the typical check would lose $459 a month.
That doesn’t mean benefit cuts are inevitable, though. Congress could still prevent them from happening, and here are some potential solutions that may come to the rescue. Unfortunately, none of them is perfect.
Raising the payroll tax rate
If you’re a salaried employee, you should know that 6.2% of your pay, up to a certain point, gets taxed to fund Social Security. Your employer also pays into Social Security at that same tax rate. If you’re self-employed, you pay at a 12.4% rate yourself, since you’re responsible for the employer side of that tax equation, too.
One thing Congress could do is raise the 12.4% tax rate to a higher number. If this change is approved, lawmakers could opt to raise taxes sharply or gradually.
Eliminating the wage cap
If you make a lot of money, you may not pay Social Security taxes on all of your income. Each year, a cap is set that limits how much earnings are taxed to fund Social Security. This year, the cap is $184,500.
Some lawmakers want to eliminate the wage cap rather than raise taxes on all working Americans. The logic is that this change will only impact people who do well financially rather than burden low- and middle-income earners with higher taxes.
What that logic overlooks is that employers share in the cost of Social Security taxes. If taxes are applied to higher wage levels, companies will be hit with that burden, which could lead to reduced hiring and fewer workplace benefits. In other words, low- and middle-income workers could suffer too, even if they themselves don’t have to pay higher taxes.
Raising Social Security’s full retirement age
Social Security’s full retirement age (FRA) is 67 right now for people born in 1960 or later. It’s when retirees can claim their benefits without a reduction. Raising FRA is another option for addressing Social Security’s income shortfall.
The problem is that some workers may, by nature, have a harder time staying in the labor force for an extra year or two than others. People in physical jobs, for example, may not be able to push themselves to work beyond age 67, which would effectively cause a later FRA to function as a benefit cut.
Ultimately, Congress must act soon to prevent Social Security cuts. With the clock ticking down, there’s no more time to wait. The ultimate plan to stave off benefit cuts may boil down to one of these three solutions, a combination of them, or something else entirely. The key is for lawmakers to prioritize Social Security before it’s too late.
Contact [email protected] for any questions or corrections.
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.
