Whether you rely on Social Security for some of your retirement income, most of it, or all of it, you probably do not want to see that monthly paycheck shrink. So if you've been hearing about benefit cuts in the news, you may have an unpleasant feeling in the pit of your stomach.
At this point, a lot of retirees and workers alike are worried about Social Security cuts. And some are even resigned to those benefits shrinking.
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But is Social Security actually looking to cut benefits, or is that just hype? Let's dig in.
What's happening with Social Security's finances?
Social Security relies mostly on payroll tax revenue to cover its expenses. In the coming years, though, that income stream is expected to decline due to a shrinking workforce.
The program also has trust funds it invests for added revenue. Those trust funds can help the program keep up with its scheduled benefits for a good number of years until they run dry.
The most recent Trustees report has Social Security's Old-Age and Survivors Insurance (OASI) trust fund running out of money by 2033. At that point, the program expects only 77% of benefits to be payable.
If the program were to combine its OASI fund with its Disability Insurance fund, then benefit cuts would not be on the table until 2034. At that point, Social Security would be in a position to pay 81% of benefits.
Based on these numbers, benefit cuts might seem like a foregone conclusion. But that's not necessarily what's in store.
Lawmakers can work to prevent Social Security cuts
Social Security has faced the possibility of benefit cuts before. Want to guess how many times the program has actually reduced benefits? Zero.
That's because lawmakers have always managed to find ways to prevent Social Security cuts. And there's no reason to think they won't try to do the same now.
However, they're cutting things awfully close. At this point, we're less than a decade away from potential cuts, and lawmakers don't seem to be prioritizing solutions. And some solutions could take time to phase in.
For example, one option for preventing cuts is to push back full retirement age, which is when recipients can collect their monthly benefits without a reduction. Full retirement age is currently 67 for anyone born in 1960 or later, but lawmakers have talked about moving it back to 68 or 69.
If that's a change they want to make, they're going to have to make it soon. That's because there are many older workers today on the cusp of full retirement age.
Granted, if this change were to happen, there would probably be a lengthy phase-in so as to not upend the retirement plans of people already in their 60s (or at least, ideally that's what would happen). But because of this, lawmakers can't afford to just take their time.
What to expect from Social Security
So let's circle back to our key question. Are Social Security cuts a myth? No -- they're more than possible.
Are they a given? No, they're not.
Whether you're working or retired, your best option may be to hope for the best while planning for the worst. That could mean boosting savings if you're still employed or considering some type of work if you're retired and don't have many expenses you can cut.
