Social Security is facing some serious financial challenges. In the coming years, the program expects to owe more money in scheduled benefits than it collects in revenue as baby boomers exit the labor force in short order.
The problem is that the program's primary revenue source is payroll taxes. But a shrinking workforce means that income stream is looking less robust.
Now Social Security has trust funds it can tap to keep up with scheduled benefits for a limited period of time -- and by limited, we're talking about roughly 10 years at this point. That's because the program's Trustees most recent estimate calls for the Social Security trust funds to be depleted by 2034. And we could see that timeline moved up when the Trustees release their next update.
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The idea of Social Security cuts is no doubt frustrating to workers today who want to be able to collect their benefits in full. But it's easy to argue that the situation is even more dire for the millions of seniors who depend on those benefits at present.
The loss of income could be catastrophic
If Social Security cuts do indeed come down the pike, the average newly retired, dual-earner couple will see their benefits reduced by $17,400 a year, or $1,450 per month, according to an analysis by the nonpartisan Committee for a Responsible Federal Budget. A newly retired couple with one earner would see a reduction of $13,100 a year.
These aren't modest drops in income -- they're enormous. And it's not like near- or current retirees have an opportunity to make up for Social Security cuts.
Workers in their 20s, 30s, and 40s have many more years of earnings ahead of them. So people in that boat can pivot if Social Security cuts become official.
But those who are already retired can't exactly go back in time and give their savings a boost to compensate for reduced benefits. And so it's fair to assume that many seniors today may be losing sleep over the idea of the Social Security Administration slashing payments.
What all of this means is that lawmakers need to band together to figure out a way to prevent Social Security cuts. There are different proposals in the works, like pushing back full retirement age and lifting the wage cap for Social Security tax purposes. And it may be that a combination of solutions is needed.
But the loss of $17,400 in annual income could be catastrophic for a couple on a fixed income. And that's just plain not fair.
The time to act is now
Lawmakers might think they have time to address Social Security's financial shortfall. But the reality is that many of the solutions needed to prevent benefit cuts will take time to implement.
Pushing back full retirement age from 67 to 68 or 69, for example, will require a phased-in approach. Lawmakers can't make that announcement overnight and expect near-retirees to just roll with it.
All told, Social Security cuts could put today's retirees in a really dire spot. Let's hope lawmakers spring into action before many seniors are effectively pushed into poverty.
