The future of the Social Security program remains more up in the air than at any time in recent years. According to the latest annual report from the Social Security Board of Trustees, the program’s projected shortfall appears to be accelerating, and if no changes are made now, a major trust fund will likely become insolvent less than a decade from now.
If Congress does not intervene with a solution soon and the projected shortfall does in fact come to pass, an automatic cut to benefits would be triggered, and, as a result, beneficiaries would have to make do with a significantly smaller benefit check each month. Furthermore, since the annual report was released prior to the One Big Beautiful Bill Act becoming law, it does not include the effects of the added tax break for seniors. As such, the cuts beneficiaries will potentially face could even end up being higher than what the trustees have estimated in the report.
Here is what you need to know about the projected shortfall and approximately how much beneficiaries could lose.
Projected insolvency
Aside from Social Security payroll taxes, the program’s funding is also supported by two major trust funds: the Old-Age and Survivors Insurance trust fund and the Disability Insurance trust fund. According to the report, the OASI fund will be depleted by 2033; however, if both funds are combined into one OASDI fund, it will be depleted by 2034. The report from the previous year projected depletion of the combined fund in 2035.
If the OASI fund reaches insolvency in 2033, the remaining revenue in the program would cover only 77% of scheduled benefits going forward, and if the combined OASDI fund reaches a shortfall in 2034, the remaining revenue in the program would only cover 81% of scheduled benefits.
Furthermore, these estimates do not take into account the effects of the OBBBA’s tax relief. Under the OBBBA, seniors aged 65 and older with income below a certain threshold will qualify for an additional $6,000 ($12,000 for joint filers) tax deduction.
Committee for a Responsible Federal Budget
A recent report from the Committee for a Responsible Federal Budget (CRFB) outlined how much future retirees could lose in benefits if the trustees’ warnings are not heeded and no change is made to the program soon. The report estimated that “a couple with medium dual income retiring in 2033 would lose $18,100 per year in benefits. For a single-income couple, this would be $13,600.”
“Dual-earner couples with low incomes would face a slightly smaller cut of around $11,000 per year, while high-income couples might experience reductions approaching $24,000 annually,” the report said.
In the report, the CRFB also noted that, “Policymakers pledging not to touch Social Security are implicitly endorsing these deep benefit cuts for 62 million retirees in 2032 and beyond. It is time for policymakers to tell the truth about the program’s finances and to pursue trust fund solutions to head off insolvency and improve the program for current and future generations.”
It should also be noted that the aforementioned amounts estimated by the CRFB assume a 24% cut to benefits, which is slightly higher than the trustees’ estimate. This is because the CRFB included the impact of the additional tax deduction for seniors under the new OBBBA in its calculations.
“The tax rate cuts and increase in the senior standard deduction from the recently enacted OBBBA would reduce Social Security’s revenue from the income taxation of benefits, increasing the required cut by about a percentage point upon insolvency,” CRFB explained in the report. “If the expanded senior standard deduction and other temporary measures of OBBBA are made permanent, the benefit cut would grow larger.”