The Social Security program has been existing as a cornerstone of financial support to tens of millions of vulnerable Americans for close to a century now. However, projections in the latest annual report from the Social Security Board of Trustees has revealed that the program is expected to reach a shortfall before it reaches its centennial celebration.
Subsequently, in a message to the public, the trustees wrote the following: “Lawmakers have many options for changes that would reduce or eliminate the long-term financing shortfalls. Taking action sooner rather than later will allow consideration of a broader range of solutions and provide more time to phase in changes so that the public has adequate time to prepare.”
As such, if Congress does not intervene in the present, beneficiaries of program are looking at a decrease of up to 23% in their benefits as per the trustees’ estimates. A fair portion of Social Security recipients rely primarily or even solely on their monthly benefit income and a reduction to this degree could very well send these households into financial hardship. Here is what you need to know.
Projected Social Security shortfall
While the program is primarily funded through the dedicated Social Security payroll tax, there are two additional trust funds supplementing this source of revenue: the Old Age and Survivors Insurance trust fund and the Disability Insurance trust fund. According to the trustees’ annual report, the Old Age and Survivors Insurance (OASI) trust fund is in major trouble and expected to become insolvent as soon as 2033 if no change is made to the program now.
If the OASI trust fund does deplete, the remaining revenue in the program would only be sufficient to cover 77% of all scheduled benefits and as a result, beneficiaries will be hit with an automatic 23% cut. The Disability Insurance (DI) trust fund is projected to remain fully solvent throughout the projection period ending in 2099. However, the trustees also provided the possibility of combining both the OASI and the DI trust funds into one OASDI trust fund.
“The resulting projected fund (designated OASDI) would be able to pay 100 percent of total scheduled benefits until 2034, one year earlier than reported last year. At that time, the projected fund’s reserves would become depleted, and continuing total fund income would be sufficient to pay 81 percent of scheduled benefits,” according to the report.
Assuming the trust funds are combined and the shortfall still comes to pass in 2034, the 12% benefit cut will translate to a loss of around $4,573 each year. It is also worth noting that these estimates were determined prior to the passing of the One Big Beautiful Bill Act which includes a $6,000 to $12,000 tax deduction for seniors aged 65 and older. This means that if no change is enacted to the program, the benefit cuts could even end up being marginally higher than the estimates in the report.
Survey reveals a high number of Social Security recipients at risk
The latest Nationwide Financial Survey which polled responses from 1,800 U.S. adults has revealed that, “more than half of Social Security recipients wouldn’t financially survive if they missed even half of a monthly payment.” According to the latest monthly statistical snapshot from the Social Security Administration, there are currently around 74 million beneficiaries in the program. This means that approximately 36 million vulnerable Americans will at high risk of financial hardship if the projected shortfall comes to pass.
The survey further revealed that, “14 percent of recipients strongly agreed that they wouldn’t be able to survive a missed payment, and 30 percent somewhat agreed.” Additionally, “74 percent said they were worried about Social Security benefits running out at some point in their lifetime, and 83 percent expressed concerns over the SSA’s long-term viability.”