The $459 Monthly Loss: What a 22% Social Security Cut Would Cost the Average Retiree
Millions of retirees already struggle to cover basic expenses on Social Security alone, and a looming federal deadline could make that situation far worse. Congress has options to prevent the coming shortfall, but every potential fix carries a painful trade-off.
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If someone at your place of work were to turn to you and say, “We’re going to be cutting your pay by $459 a month due to financial difficulties,” what would your reaction be? Would you be outraged? Upset? Scared?
This is the reality Social Security recipients face today.
The average retiree on Social Security collects about $2,088 a month. Meanwhile, the Social Security Trustees report that the program may face a sweeping 22% benefit cut as early as 2032 due to a pending financial shortfall.
If a 22% benefit cut is implemented, the average Social Security recipient could see their monthly income reduced by $459. And that’s a loss many retirees simply can’t afford.
A 22% Social Security cut could be catastrophic
The nonpartisan Senior Citizens League estimates that 24.6 million older Americans today pay their bills on Social Security alone. That’s roughly 44% of the retirement-age population. That makes Social Security cuts a broad problem lawmakers have to solve.
As mentioned above, the average monthly Social Security check is $2,088. But the Bureau of Labor Statistics puts average monthly spending among Americans age 65 and over at $5,119.
As it is, seniors who rely solely on Social Security for income can’t afford an average lifestyle. Losing $459 per month would no doubt plunge millions of retirees into poverty.
What Congress can do to prevent benefit cuts
The good news in all of this is that Congress has options to prevent Social Security cuts. The bad news is that each potential solution creates another issue.
One option is to implement a broad tax hike to pump more revenue directly into Social Security. But the drawback here is clear. Raising taxes burdens working Americans, as well as the companies that employ them.
Now Congress could instead opt to raise taxes only on the wealthy. But since employers share in that obligation, once again, the cost of maintaining a payroll would go up. That could lead to widespread layoffs and reduced corporate spending, which could negatively affect the U.S. economy as a whole.
Instead of raising taxes to prevent Social Security cuts, Congress could instead increase the program’s full retirement age (FRA), which is currently 67 for anyone born in 1960 or later. FRA is when seniors are able to collect their monthly benefits without a reduction.
Raising FRA, however, puts the burden on working Americans to remain employed longer or otherwise face a self-imposed benefit cut. And if physical laborers are unable to work a few extra years due to health-related limitations, they effectively lose out on Social Security through no fault of their own.
The point, therefore, is that while lawmakers can potentially stave off Social Security cuts, doing so is complicated and may not be fully possible. That’s why it’s important for working Americans today to save as much as possible.
If you’re able to build a nice amount of savings, you may end up in a position where a $459 monthly Social Security cut doesn’t hurt your retirement plans all that much.
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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.
