You might be aware that a major Social Security trust fund will disappear in about a decade — and take a big chunk of retirees’ benefits with it. But until recently, putting a dollar figure on the potential impact on Social Security recipients has been difficult. Now we know what the impact might be: more than $13,000 a month for some couples, according to one estimate.
A recent report from the nonprofit Committee for a Responsible Federal Budget (CRFB) found that the typical newly retired single-income couple will see a cut of $13,100 a year once Social Security’s Old Age and Survivors Insurance (OASI) Trust Fund runs out of money. That’s supposed to happen in about a decade. When it does, Social Security will be solely dependent on payroll taxes for funding, and those only cover about 77% of current benefits.
The impact on newly retired dual-income couples will be even greater, with the CRFB projecting that they’ll face a cut of more than $17,000 a year.
The cuts would differ depending on income. For example, the CRFB estimates that a low-income, dual-income couple retiring in 2033 would see a $10,600 yearly cut, while a high-income, dual-income couple retiring in 2033 would see a $23,000 cut.
Even though the cut for a low-income couple would be smaller, it would represent a larger share of their income, meaning that “senior poverty would rise significantly upon insolvency,” according to the CRFB.
Adjusted for inflation, the CRFB estimates that a typical dual-income couple would face a $14,000 cut, while low-income couples would face an $8,500 cut and high-income couples would face an $18,500 cut.
Despite the projected cuts, it’s important to keep in mind that Social Security itself isn’t going anywhere. The program is mostly funded by payroll taxes and will still be able to pay more than 75% of current benefits without the OASI money.
Even so, a number of lawmakers have floated proposals to “fix” Social Security either through benefit cuts or higher taxes. Here are some of their ideas:
- Tax the wealthy: Some lawmakers want to raise the annual income threshold on wages subject to Social Security payroll taxes. Currently, any wages above $160,200 are not taxed. One recommendation is to hike that figure to $250,000 or higher to bring in more revenue.
- Raise the full retirement age: The current full retirement age is 67 years old for workers born in 1960 or later. By raising the FRA to 69 or 70, lawmakers hope to make more workers ineligible for full Social Security benefits, which would slow the pace of the trust fund’s depletion.
- Cut benefits across the board: This is a politically unpopular idea — however, some lawmakers have hinted that Social Security expenditures need to be reduced to help balance the budget, and benefit cuts are one way to do that.
- Increase payroll taxes: Currently, both employees and employers contribute 6.2% of wages in payroll taxes to fund Social Security. By increasing the rate, Congress could pump more money into Social Security.
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