Throughout the United States, around one in six U.S. residents received Social Security benefits last year. Older Americans make up the vast majority of those who get money from the Social Security Administration (SSA), accounting for as many as four out of five beneficiaries.
For millions of seniors, this income is a lifeline making it possible to afford the essentials once a paycheck stops coming. But sadly, both current and future retirees can't count on Social Security continuing to provide the full payments they were promised.
In fact, in as little as 15 years, a dramatic and catastrophic benefit cut could happen that would cost seniors more than $16 billion per month.
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Social Security Retirees are looking at huge losses if lawmakers don't act
The looming retirement benefits crisis that Americans are staring down exists because the combined trust fund that supports the Social Security retirement and disability benefits programs is slated to run out of money as early as 2035, according to the Social Security trustees.
When the trust fund runs out of cash, Social Security can pay benefits only with money it collects from payroll taxes and taxes on current beneficiaries. The good news is, taxes provide billions in annual income. Since this money will continue to be collected from current workers unless Congress changes the law, there will always be money available to pay retirement and disability benefits.
The bad news is, the money taxes produce isn't enough to pay all that's promised. In fact, if the trust fund runs short and retirees can be paid only from incoming cash, there'll only be enough to pay out about 76% of promised benefits. Seniors collecting Social Security will be looking at a whopping 24% cut.
And as bad as that sounds, it's worse when you look at the amount of cash that will strip away from older Americans. In December of 2019, Social Security paid out $67.7 billion to retirees alone. A 24% cut would mean seniors are going to lose out on just over $16 billion in monthly income.
And that's assuming Social Security doesn't dramatically increase it's outflows over the next decade, which it likely will as Americans age, more people retire, and the 2020 recession prompts an increase in the number of people claiming benefits. So the actual value of lost benefits will almost assuredly be even higher than that frightening $16 billion per month number.
What are your options?
Unfortunately, your options for preventing more than a $16 billion monthly loss in Social Security benefits are limited. You can do two things:
- Check every candidate's record on Social Security before voting.
- Let your representatives know you want action to shore up Social Security before it's too late.
Sadly, most fixes to Social Security will likely also result in a benefits cut, and Washington lawmakers haven't been able to successfully compromise on a fix for Social Security since the 1980s, so there's not much hope of new legislation any time soon.
That means your best course of action is to make sure you're personally prepared for a benefits cut, if one occurs. Whether you're already retired or are planning to be over the next few decades, you need to make sure your budget works with less money from the SSA.
For younger people, saving more money now is the best way to be ready. For those early in retirement who could be hard hit by a benefits cut in their later years, the key is to spend conservatively, avoid drawing your investment account down too quickly in case you come to rely on it more, and make sure you have savings available to see you through hard economic times.
