Social Security benefits may not continue at their present level. Learn when and why a cut could happen and what it means for seniors.
Social Security benefits help millions of seniors to afford necessities, especially as far too many people don't have enough retirement savings.
Unfortunately, these benefits don't do a great job of providing for all of the financial needs of retirees. That's because most people need to replace around 70% to 80% of pre-retirement income at a minimum when retiring, while Social Security benefits typically replace only about 40% of what you were earning before you retired.
This situation could actually get worse soon, though. There's a potential risk of a benefit cut that would reduce Social Security checks by as much as 21%. Here's when this could happen and why it might occur.
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The Social Security Trustee's report shows that financial trouble may be on the horizon
Each year, Social Security's trustees release a report sharing details about the state of the program's finances. The 2024 report is out, and it should worry seniors who are dependent on their benefits as well as future retirees who are counting on Social Security to be a major income source.
According to the report, the trust fund that supports Social Security is expected to run out of money as soon as 2033. At that time, money will still be coming into the program from taxes collected on current workers and higher-earning retirees. Retirees will keep getting paid some benefits out of the money Social Security is bringing in. But, the law doesn't allow the program to borrow to fund its obligations. Unfortunately, since there won't be enough money to pay 100% of the promised benefits without borrowing, an automatic benefit cut would have to happen at that time.
Specifically, Social Security would have the money to pay out 79% of scheduled benefits if the Old-Age and Survivors Insurance (OASI) Trust Fund runs dry as current projections suggest. That would leave retirees facing a 21% cut to benefits which already aren't really big enough.
Now, there's a chance that Social Security's retirement trust fund could be combined with the fund supporting the Disability Insurance program. This would buy another few years, as the combined fund could pay 100% of promised benefits until 2035. If the fund is depleted at that time and automatic benefit cuts have to happen, the cuts also wouldn't be quite as dramatic. Under this scenario, retirees would expect to receive about 83% of promised benefits, so they'd face just a 17% cut.
However, a change in the law would need to happen to combine these funds. While this would buy a little more time, it ultimately wouldn't eliminate the long-term risk of a big benefits reduction.
Should you prepare for Social Security benefit cuts?
If you're retired now or will be in the future, the date when benefit cuts could happen probably doesn't seem too far away. Naturally, this means there's cause for concern.
Now, it's very unlikely that lawmakers are just going to sit back and allow retirees to see a 21% benefits cut or even a 17% reduction. But, there's been no consensus on change in the recent decades when Congress has discussed Social Security modifications. What's more, when lawmakers reformed the program in the early 1980s, they pushed through de facto benefit cuts by making Full Retirement Age later and requiring some seniors to pay taxes on part of their Social Security benefits.
If reforms take a similar form, some kind of cut to benefits is likely, even if it's not a direct reduction in income for current seniors. If FRA is pushed later, for example, Americans will need to choose between putting off their claim for benefits for longer or accepting a reduced lifetime benefit to avoid early filing penalties. Both could leave them with less lifetime Social Security income.
The bottom line is that some kind of reduction in benefits is very possible even if an automatic 21% cut is extremely unlikely. That's why it's so important for both current and future retirees to be prepared for the possibility. Maintaining a safe withdrawal rate to preserve savings is a good idea for current seniors, while those planning to retire in the future should make certain to have supplementary savings to provide support in case Social Security falls short. Since Social Security isn't enough to be a sole support source anyway, having that savings is crucial even if lawmakers step in to stave off those automatic cuts.
FAQs
According to the 2024 Social Security Trustees Report, the trust fund supporting Social Security retirement benefits (The Old-Age and Survivors Insurance (OASI) Fund) is expected to be able to continue paying full benefits until 2033, at which time a 21% benefits cut would go into effect if nothing changed.
At what age does Social Security stop penalizing you for making too much money? ›
later, then your full retirement age for retirement insurance benefits is 67. If you work, and are at full retirement age or older, you may keep all of your benefits, no matter how much you earn.
Which president borrowed from the Social Security Fund? ›
Since 1983, every US President has borrowed from Social Security to pay for government expenditures. However, there is no evidence that any of the presidents has stolen a dime from Social Security.
What percentage of Social Security do you lose if you retire at 65? ›
With delayed retirement credits, a person can receive his or her largest benefit by retiring at age 70. In the case of early retirement, a benefit is reduced 5/9 of one percent for each month before normal retirement age, up to 36 months.
At what age is Social Security no longer taxed? ›
Social Security tax FAQs
Social Security income can be taxable no matter how old you are. It all depends on whether your total combined income exceeds a certain level set for your filing status. You may have heard that Social Security income is not taxed after age 70; this is false.
At what age do you get 100% of your Social Security? ›
The full retirement age is 66 if you were born from 1943 to 1954. The full retirement age increases gradually if you were born from 1955 to 1960 until it reaches 67. For anyone born 1960 or later, full retirement benefits are payable at age 67. The chart on the next page lists the full retirement age by year of birth.
What is the 10 year rule for Social Security? ›
If you've worked and paid Social Security taxes for 10 years or more, you'll get a monthly benefit based on that work. Then, we'll see if you're eligible to get additional money based on a current or former spouse's work.
How much money has the government borrowed against Social Security? ›
The Government Has Borrowed $1.7 Trillion From The Social Security Trust Fund. The government has borrowed the total value of the Trust Fund to pay for other government spending. Beginning in 2017, the government will have to begin backing up these paper promises with real money.
What president started taking taxes out of Social Security? ›
The taxation of Social Security began in 1984 following passage of a set of Amendments in 1983, which were signed into law by President Reagan in April 1983. These amendments passed the Congress in 1983 on an overwhelmingly bi-partisan vote.
What will replace Social Security? ›
In the proposals presented to the Commission, the use of retirement bonds--and annuities based on bond accumulations- would also replace the entire benefit structure of Social Security for the future.
Keep reading to learn how you could lose some or all of your Social Security benefits.
- You Forfeit Up To 30% of Your Benefits by Claiming Early. ...
- You'll Get Less If You Claim Early and Earn Too Much Money. ...
- The SSA Suspends Payments If You Go To Jail or Prison. ...
- You Can Lose Some of Your Benefits to Taxes.
If you become disabled before your full retirement age, you might qualify for Social Security disability benefits. You must have worked and paid Social Security taxes in five of the last 10 years.
At what age can a wife take half of her husband's Social Security? ›
When a worker files for retirement benefits, the worker's spouse may be eligible for a benefit based on the worker's earnings. Another requirement is that the spouse must be at least age 62 or have a qualifying child in her/his care.
When a husband dies, does his wife get his Social Security? ›
Views: A surviving spouse, surviving divorced spouse, unmarried child, or dependent parent may be eligible for monthly survivor benefits based on the deceased worker's earnings. In addition, a one-time lump sum death payment of $255 can be made to a qualifying spouse or child if they meet certain requirements.
Can I get a tax refund if my only income is Social Security? ›
You would not be required to file a tax return. But you might want to file a return, because even though you are not required to pay taxes on your Social Security, you may be able to get a refund of any money withheld from your paycheck for taxes.
Do you pay income tax after 70 years old? ›
If you want individualized help preparing for retirement or creating a tax strategy, you can bring on a financial advisor. At What Age Can You Stop Filing Taxes? Taxes aren't determined by age, so you will never age out of paying taxes.
Can Social Security be taken away if you make too much money? ›
You can get Social Security retirement benefits and work at the same time. However, if you are younger than full retirement age and make more than the yearly earnings limit, we will reduce your benefits. Starting with the month you reach full retirement age, we will not reduce your benefits no matter how much you earn.
What is the penalty for making too much money while on Social Security? ›
If you are younger than full retirement age and earn more than the yearly earnings limit, we may reduce your benefit amount. If you are under full retirement age for the entire year, we deduct $1 from your benefit payments for every $2 you earn above the annual limit. For 2024, that limit is $22,320.
At what age does Social Security stop calculating benefits? ›
Social Security retirement benefits are increased by a certain percentage for each month you delay starting your benefits beyond full retirement age. The benefit increase stops when you reach age 70.
At what age can you draw Social Security and not be penalized? ›
You can earn any amount and not be affected by the Social Security earnings test once you reach full retirement age, or FRA. That's 66 and 6 months if you were born in 1957, 66 and 8 months for people born in 1958, and gradually increasing to 67 for people born in 1960 and later.
