There’s a lot of anxiety involving Social Security as the program heads for a looming funding shortfall caused by the depletion of the Old Age and Survivors Insurance (OASI) Trust Fund. The OASI fund is expected to run out of money in about a decade. When it does, some retirees could face a cut of more than $17,000 a year, according to one estimate.
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The estimate was included in an Aug. 8 report by the nonprofit Committee for a Responsible Federal Budget (CRFB). In that report, the CRFB wrote that when the OASI fund becomes insolvent — likely by 2033 — annual benefits “would be cut by $17,400 for a typical newly retired dual-income couple.”
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Once the OASI fund runs out of money, the law mandates that it can “only spend in amounts equal to incoming trust fund revenue,” according to the CRFB. This means that all 70 million retirees, dependents and survivors will see their benefits cut by 23%.
“For a typical dual-income couple retiring in 2033, we estimate this would represent an immediate $17,400 cut in current dollar annual benefits and an immediate $13,100 cut for a typical single-income couple,” the CRFB added.
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 these 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 even 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 wildly unpopular idea that usually means political suicide for those who support it. 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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This article originally appeared on GOBankingRates.com: Social Security: Retirees Can Face a $17,400 Cut In 2033 — Will Social Security Be Saved?
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