Social Security retirement benefits may face an automatic, across-the-board cut in just six years, according to the latest projections.
Experts suggest that putting off Social Security reform could have consequences for both beneficiaries and the economy. Congress may act sooner to prevent these cuts, or lawmakers might choose to delay reform.
The Social Security retirement trust fund, formally known as the Old-Age and Survivors Insurance Trust Fund, which pays benefits to eligible workers and qualifying family members, is projected to run out in the fourth quarter of 2032, according to program trustees.
If no intervention occurs before that time, the trustees project that retirement benefits will be cut by 22%.
The Congressional Budget Office offers a more severe forecast, anticipating that the retirement trust fund might run out sooner, in mid-2032, and that retirees could face larger benefit cuts, potentially up to 26%, upon insolvency.
Beneficiaries may face significant reductions in monthly benefits. According to a June report from the Committee for a Responsible Federal Budget, beneficiaries could see an average $500 cut across the U.S., based on a projected 24% benefit cut.
The impact of potential cuts varies by location. According to a nonpartisan organization focused on fiscal policy, retirees in 29 states would see even larger average reductions.
The political timeline for Social Security is tied to the election cycle. Senators elected this November will be in office in 2032, which is when the retirement trust fund depletion date is projected to occur.
The ability of these senators to address the situation is crucial for retirees and the economy, though this outcome is not certain given the political climate.
“The attention on 2032 is appropriate in the sense that that is when beneficiaries and future beneficiaries will see and feel the consequences of inaction,” stated Shai Akabas, vice president of economic policy at the Bipartisan Policy Center.
Akabas noted that such a deadline motivates action, stating, “Nothing gets Congress to move like that type of deadline.” These Senate races may determine the fate of Social Security. Congress could choose to delay enacting changes to shore up Social Security, potentially opting to kick the can down the road. Such changes might require tax increases, benefit cuts, or a combination of both.
If lawmakers decide to combine Social Security’s retirement and disability trust funds, the depletion date may move to the third quarter of 2034. According to Social Security’s trustees, this delay could result in benefits being cut by 17%.
Akabas noted that any delay by lawmakers would have consequences, including the continuation of Social Security’s shortfall and potential consequences for the economy.
The economic impact of potential cuts is significant. Research from the National Institute on Retirement Security (NIRS), a Washington, D.C.-based non-profit, non-partisan organization, indicated that in 2023, Social Security benefits generated $2.6 trillion in total economic output and supported more than 12 million jobs.
Furthermore, the NIRS research suggests that a 19% benefit cut could reduce gross domestic product by hundreds of billions of dollars.
Failing to implement Social Security reform could also prompt bond market strain. This market connection exists because Social Security’s trust funds are invested in special issue U.S. Treasury bonds.
If Social Security reform is delayed, it may put upward pressure on Treasury yields, as investors desire higher returns for long-term bonds.
Research from the Mercatus Center suggests that delayed reform could prompt higher interest rates and borrowing costs, or inflationary adjustments that hurt the value of government liabilities.
These changes may affect household budgets through higher borrowing costs for mortgages, auto loans, and other types of consumer credit, as well as student loans.
Akabas noted that if interest rates and prices rise, it will interfere with economic growth, and these effects are also felt by the American people in addition to adjustments to their benefits.
Heading to the midterms, some Democratic congressional candidates have stated they would raise or eliminate the Social Security payroll tax cap so high earners pay more into the program. For example, in 2026, the 6.2% tax paid by both workers and their employers applies to earnings up to $184,500.
It remains uncertain whether Washington leaders will have the political will to address the problem soon, and tax increases may not be viewed as politically popular heading into the 2028 presidential election.
Jessica Riedl, a fellow at the Urban-Brookings Tax Policy Center, stated that payroll taxes are “extraordinarily unlikely” to rise in the next couple of years. If such tax hikes occur, they would likely be closer to 2032.
Some observers note that there is no interest on either side for certain tax increases in the short term, but they suggest that in the long term, everything is on the table.
The National Committee to Preserve Social Security and Medicare, which was founded by President Franklin Delano Roosevelt’s son, former Congressman James Roosevelt, has taken actions to protect these programs.
The advocacy organization has scored incumbent lawmakers on whether their votes have protected those programs.
The organization also endorses candidates that support raising payroll taxes and protecting Social Security benefits from cuts. Dan Adcock, NCPSSM’s director of government relations and policy, stated that the organization uses endorsements, such as a set of boxing gloves, as a symbol of the fights candidates will face in Congress.
The organization is working to educate voters that the senators elected this year will be among those to deal with Social Security. Adcock emphasized that voters need to be asking candidates about what their plans for the program would be.