FREE NEWSLETTER
Go to main Forum page »
A recent post on the Forum raised the issue of dealing with a cut in Social Security benefits – hopefully an unlikely or very temporary event. However, something still worth planning for.
If the status of SS is not fixed, around 2033 benefits could be reduced by 23-24%. The Committee for a Responsible Federal Budget projects a 24% cut by late 2032 for retirees, equating to an $18,100 annual reduction for a typical dual-earning couple retiring in 2033. That’s significant money.
Have you calculated the possible impact on your overall retirement income? Do you have a backup plan to deal with such a possibility- even if it lasted a few months?
I don’t know if the Congress of tomorrow will have the same motivations as ones from the past when it comes to SS. The richest amongst us casually label this program as a Ponzi scheme and fund elections on this premise.
Since we don’t have term limits in Congress, change will be slow if ever coming. Hard choices need to be made and bravery to make those changes.
Don’t we have the power to impose term limits simply by voting?
Given the current state of gerrymandering in this country that’s not as effective as you might think. There are very few competitive Congressional districts left.
In 1995 the US Supreme court in U.S. Term Limits, Inc. v. Thornton, 514 U.S. 779 (1995) effectively ruled that imposing term limits on members of congress required a constitutional amendment, at least that is my layman’s understanding of the law as it currently exists.
Get Congress into the SS system for their retirement. That’s the only way it will be fully funded past the 2030 cliff. That idea doesn’t stand a snowballs chance in you know where. My only suggestion is to eliminate the fica income cap and have employers and employees pay into the system without a fica limit. Not sure how much revenue that generates but its a start. Another idea is to install a vat tax across the board to raise revenue similar to the fair tax idea. It’s a consumption tax and the more expensive an item you buy the more vat you pay. Of course these revenue ideas can only fund SS and Medicare.
Congress and all federal employees have participated in SS since 1984. Few members of Congress actually receive any significant federal pension because they are not there long enough either to participate or accumulate significant benefits.
The Center for Retirement Research at Boston College on July 8, 2025 issued a brief on this topic written by Alicia Munnell titled “Social Security’s Financial Outlook: The 2025 Update in Perspective”.
The brief’s key findings are:
For me, the third bullet point, that the estimates of when the trust fund will be depleted is based on intermediate assumptions, appear to me to be optimistic. The observation in the brief and in many of the HD comments that the needed cure is political will to solve the problem.
As noted in the comments in the HD Forum article penned by Richard Conner, 2024 Update to the OASDI Beneficiaries by State and County, and in this article there appears to be limited near term concern or planning if or should a 20% plus reduction in scheduled social security benefits occurs in the early 2030’s.
We each determine our own appropriate planning to both known and unknown risks for ourself, families, heirs and our fellow citizens. I take such planning to be fundamental for me.
Best, Bill
There are a number of ways of squeezing the benefits, including the alteration of the approach to COLA adjustments.
I began planning for possible reduction to benefits when I reached age 60. On a personal level that required working longer and saving more. There is also the basic decision about when (at what age) to file for benefits.
“There are a number of ways of squeezing the benefits, including the alteration of the approach to COLA adjustments.”
There was previously a squeeze when they change to utilizing the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The purpose was to decrease the increases going forward.
The Bureau of Labor Statistics in the past has
the calculated the Consumer Price Index for the Elderly (CPI-E) which would more correctly reflect the increased expenses for those receiving benefits. However a large portion of this index is healthcare which the elderly utilize more than the general public. Since typically these increase faster than general inflation it would provide higher, but more appropriate increases. Who knows if these calculations will continue in the future due to the administration cuts.
As someone who earned enough to pay almost the maximum into the system and waited until 70 for my benefit and worked until 72 I now feel there may be a bull’s-eye on my current benefit which is enough to cover my non-discretionary expenses for my moderate lifestyle in a moderate cost of living area. I think it is likely that any reduction in benefits will not be applied equally but will mostly affect those at the higher end. Some schemes have mentioned setting all benefits to the same low amount.
My retirement stool has only two legs since I have no pension. The only strategy I have is to make sure my retirement funds are sufficient to make up for any benefit reduction. This means that I continue to invest for growth and have made only modest changes since retiring, increasing my holdings of fixed assets by enough to carry through market declines and avoid forced selling.
Have no fear. For people already collecting benefits, highly unlikely any scheme will be applied. Rather, a simple percentage reduction which, of course, means more absolute dollar reduction for higher benefit people.
I’d suspect most HD could ride it out just fine. For the rest I’d guess it’s a risk to be aware of but you can’t directly hedge for everything.
When it comes to something which would be a catastrophic grey vote loser (& remembering the greys vote most) it would be far easier to fudge the programme and make it a ponzi scheme from current taxes like other countries do.
It is from current taxes. It’s just that current taxes were not adjusted to keep pace with required spending changes. That’s the shame of it. It’s been funded the same way since 1936 and there is no excuse to be in this place.
But if it was entirely from current taxes there would be no need for a trust fund. That’s what I mean. Easy to fudge SS if you overlook hypothecation of taxes for political expediency.
It’s all ultimately a game of who is holding the bag when it gets real.
You could say the same about a pension plan, but there are always reserves. Let’s say it was only from current taxes and no reserve. Then you would be at risk in periods of high unemployment or recession when taxable wages declined, or periods of high inflation when the COLA cost an unusually high amount.
The failure of Congress to adjust tax rates to the level just of paying current benefits is how we got into this mess. And Congress has been warned year after year by the trustees to take action.
I wouldn’t leap to that initial assumption. Not everyone here is a high-net-worth individual!
Not that I really worry about this happening, but if it did I’m afraid my only fallback would be to install another garden bed to increase our crop of potatoes and squash.
While I would not be happy about any cuts to our benefits, it would not be particularly devastating to us.
That said, I think the chances of cuts happening are about 5% at most. It would be political suicide for politicians to allow this to occur, and they are foremost in the business of getting themselves re-elected.
They will make major reforms to the system, like they last did in 1983. But like 1983, they will provide a very long runway before they take effect, so that current beneficiaries, and likely near beneficiaries, will not be impacted.
I agree. As I understand it in 1983 Congress didn’t act until just a few months before benefits would have been cut (probably since they the then serving members knew they’d be blamed). I hope Congress does better this time, but I’m skeptical. Gene
At this nightmarish point in American politics, I think your odds might be better with a Powerball ticket than with any solution involving the words “Congress does better.“
Even though I try not to overthink or worry about a reduction in SS after thinking about the question for about one minute my answer is… since we took our SS at full retirement age and invest it, we would simply start living on our SS income instead of investing it
I first thought the title of this article was about people considering early social security claim, thus benefit reduction. But it’s still worth noting that if someone stops working due to serious health condition or total disability, they should apply for SSDI. This pays same benefit as full retirement age, sometimes retroactive to the date of diagnosis, and spousal death benefits are not affected.
The thing that seems hardest to know is the effect of the cuts on the economy as a whole. If the buying power of millions of consumers is suddenly slashed, I suspect the impact to business and the employment of non-retired citizens could be extreme. What would be the effect on our IRA balances?
Where will the increased SS benefits come from? Obviously, the economy, workers (who collectively are “millions of consumers”). Like taking a bucket of water from one end of the pool and emptying it in the other end of the pool. Same amount of water.
It would present one of the largest deflationary pressures since the Great Depression. I have no idea if any nation has sucked that much money out of their economy without a crisis of some sort.
Can you think of anything else in the offing that could have such negative consequences? I can’t.
This is a good point, Dan, about the economy as a whole. Chris
There are a number of ways Congress can utilize to fix this. Before they do contemplate raising the retirement age, it would be nice if studies were made of the effects on the lives of people who are still transitioning to the higher ages — like people born in 1960 and later who won’t reach FRA until they’re 67. This hasn’t even taken effect yet for the youngest baby boomers! So hopefully they don’t raise the retirement age.
Other methods would include just having people pay the same percent without a top barrier for earned income, same as they do for the Medicare portion of their income. It’s only fair — boo hoo if they make so much more money and it’s more money in total they are paying in. Subsidize some of those people’s retirement a bit who serve you, teach your children, entertain you, protect you, etc. who don’t make as much but are paying in the same percentage as you, but haven’t your luck or the right field or education to make as much as you do. Or taper it to a smaller percentage after a certain amount, or make part of it tax-deductible possibly, to make it a little palatable to the wealthy.
Until they fix it, unless one really needs the money, I’d suggest holding off starting Soc. Security, since 80% of a larger number is a bigger check than claiming earlier for a smaller number from which to get 80%.
Less than 10% of Americans earn at least $176,000 and that’s not just earned wages. Why should 10% bail out a program designed to be self funding and paying greater benefits to lower income earners already?
Medicare is entirely different as the potential benefits are totally unrelated to income.
You’re right, if SS is going to be changed into a welfare type program it would need to be scrapped entirely and redesigned to directly address the new goals. I suspect the details of that changeover would result in the program not being nearly as popular.
A benefit earned is generally more popular that straight redistribution.
25 million Americans count SS as their only source of income … that could get ugly
The benefits currently received by the lower income folks who are largely or completely dependent on SS are likely much smaller than those in my group, and I don’t know how they would manage with an across the board cut.
I think a lot of the HD folks have enough other assets that they can just pull from them, to be honest. In our case, we are taking less from our tIRA than we could. We also have a taxable account, HSA and a Roth we could take from. I don’t think we would need to take a part time job, but am guessing the average American might have to? We have already downsized to 1 car, and could downsize our house if we absolutely had to. We are debt free, so that helps. Chris