Social Security retirement benefits keep millions of seniors out of poverty and help many more enjoy their later years with fewer financial worries. Sadly, while these earned benefits are both incredibly popular and incredibly important, they're probably going to be cut sometime within the next 15 years or so.
Although most of the public opposes cuts to benefits, the sad reality is that whether lawmakers act or whether they don't, there's a good chance future retirees will get less money than they were promised. Here are four reasons why.
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1. Cuts will happen automatically if lawmakers don't act
Social Security cuts are very unpopular, so no politician wants to vote for them. But a benefits cut won't just happen if lawmakers authorize it. In fact, unless Congress acts, benefits will have to be reduced automatically in 2035. That's when the combined trust funds for Social Security benefits will run dry.
When the trust funds run out of money, Social Security can only pay benefits from payroll taxes. There's enough to pay out 76% of promised retirement benefits, so a 24% cut would happen automatically because there'd be no money available to avoid it.
2. Past attempts to compromise have been a disastrous failure
Social Security has been in financial trouble before, but lawmakers amended it in 1983 to fix the financial shortfalls. Since that time, however, no major changes have been made -- although they've been attempted. The Simpson-Bowles commission, formed by President Obama in 2010, suggested reforms to the program to make it sustainable, but lawmakers never took up their suggestions. And in recent years, lawmakers haven't been very good at compromising on anything, which has led to multiple government shutdowns and a debt-ceiling crisis.
Since the right and left can't agree on even simple things, it's almost inconceivable that they'll be able to come to a compromise on something as controversial as Social Security fixes -- especially as Democrats are pushing to expand the program, and any sort of "grand bargain" to fix its finances that could include benefit cuts has become anathema on the left.
3. Most options to shore up the program involve at least some kind of benefits cut
Although lawmakers on the left largely insist benefit cuts are off the table, the reality is that there are only two ways to fix a program that's in financial trouble: Raise revenue or cut benefits.
Unfortunately, raising revenue is complicated. An across-the-board payroll tax increase would have to be a substantial one, which isn't popular on the right (the Trump Administration is actually urging payroll tax cuts) or the left (because payroll taxes are regressive, since lower-income workers pay them on all of their earnings while higher-income workers don't). And while many Democrats are in favor of raising payroll taxes for the wealthy only, this would either change the way the program works if benefits don't go up accordingly, or it wouldn't help much because those richer workers who paid in more in taxes would get much higher benefits.
If Social Security can't be fixed by a revenue bump alone, benefit cuts are the only other solution. And most proposals to fix the program's finances do involve cutting benefits in some way -- usually by raising full retirement age or switching how cost of living increases are calculated so benefits don't rise as quickly. So even if lawmakers manage to compromise, that will mean benefits are cut too.
4. The program isn't sustainable under the current system
Social Security only works if lots of current workers are paying into the system. Unfortunately, with the birth rate dropping, legal immigration declining, the population aging, and lifespans getting longer, there simply aren't going to be enough workers paying payroll taxes to provide adequate funding to keep the program financially stable.
Social Security's deficit is very likely to keep getting bigger, unless something gives. Since increasing the number of people in the workforce isn't easy, the most likely outcome is that benefits will have to be reduced.
Take steps today to prepare for the cuts that are likely coming
While it's unfortunate that retirees in the future may not get the full amount of promised benefits, you can at least prepare for this unpleasant reality by taking some steps in advance. And the sooner you start, the better.
If you have a long time left until retirement, set ambitious retirement savings goals that rely less on Social Security and more on income your investments produce. Aim to save enough that money from Social Security is just a bonus, not something you depend on.
If you're already in retirement, or close to it, it's less likely you'll have to worry, since most of the proposals for future benefits cuts will affect only those who haven't yet left the workforce. But it's still best to be ready in case lawmakers don't act and an automatic across-the-board benefits reduction becomes necessary after all. That means making sure you maintain a safe withdrawal rate so you have your investment accounts to fall back on.
And, of course, if you care about preventing cuts to Social Security, make sure you vote with your benefits in mind, watch any negotiations aimed at shoring up the program, and contact your representatives to make your opinion known.
