U.S. citizens will see a $500 monthly cut in their Social Security payments by 2033 if nothing changes in the financial condition of the system. Analysts have long predicted that the Social Security system will become insolvent by the mid-2030s. This means that the social safety net program would be forced to start sending significantly smaller checks to beneficiaries.
The Social Security Administration has long-faced a funding crisis, as more baby boomers are retiring and there is a smaller population of young workers in the country who can contribute to the system. Earlier this year, a report from the administrators showed that Americans can expect Social Security benefits to be reduced by 21 percent in 2033 due to the continuing funding problem.
A new Motley Fool analysis showed the extent of the consequences. Based on the current average Social Security check of $1,918.28 for retired workers and using an estimated 2.6 percent cost-of-living adjustment based on the average COLA over the past 20 years, the average Social Security payment for seniors should be $2,416.79 in 2033.
U.S. Citizens to See $500 Monthly Cut in Social Security by 2033
But with a decrease of 21 percent, it would be reduced by $507.53 per month, which means that seniors who have Social Security benefits would lose about $6,090 a year in benefits.
“If nothing changes, cuts will need to be made to the current system,” said Kevin Thompson, a financial expert and founder and CEO of 9i Capital Group. “People are likely to take home a smaller portion of their current salary, which will be a major concern for those living on fixed incomes.”
Since it was enacted in 1935, Social Security has supported Americans during their retirement years, as well as people with disabilities. “In 2022, about 22.7 million people, including 16.5 million seniors, will be lifted out of poverty thanks to their Social Security benefits,” according to the Center on Budget and Policy Priorities, a group of non-partisan experts.
Your Social Security Check Could Shrink – What Lawmakers Are Saying
Lawmakers have suggested several possible solutions to Social Security’s financial problems, but few are politically popular. Democrats tend to call for higher taxes for citizens with higher incomes, while Republicans have recommended raising the full retirement age.
Thompson said it’s unlikely either party would allow the planned benefit cuts to happen, based on how voters would react. “If you want to keep your seat in Congress or the White House, you cannot allow these cuts to happen during your administration,” he said. “He will always be remembered as the president who cut my government pension.”
Alex Beene, a financial literacy instructor at the University of Tennessee at Martin, echoed this sentiment. He said more government funding would likely be taken into account before any lawmaker decides to allow cuts for the handful of seniors who rely on benefits for essential expenses.
“From a legislative standpoint, it would be political suicide for any party to allow significant cuts to payments to retirees on their watch,” Beene said. “While the financial data tells us there will be cuts, lawmakers will most likely ensure that Social Security remains fully funded and that increases in payments continue to occur, even if that means printing more money to do so.” .
One proposal is to increase the Social Security tax limit, which is currently $168,600. Any income above that figure is excluded from Social Security taxes.
“This will allow for more tax dollars to be raised and greater sustainability,” Thompson said. “As for how much they should raise the limit, [it should] be based on how sustainable the system would be with those higher income amounts.”