This is what the average retiree will lose if Social Security isn’t fixed – MarketWatch
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Last Updated: Aug. 12, 2023 at 9:36 a.m. ET First Published: Aug. 10, 2023 at 12:55 p.m. ET
Committee: ‘If the next president chooses not to lead on this issue, we’re screwed’
Social Security’s average monthly benefit is $1,789, according to the Senior Citizens League.
Getty Images/iStockphoto
[]Failure to strengthen Social Security by leaving it untouched would result in a 23% across-the-board benefit cut in 2033, when the Social Security retirement fund becomes insolvent, harming those who need the benefits the most.
[]In 2033, annual Social Security benefits would be cut by $17,400 for a typical newly retired dual-income couple and $13,100 cut for a typical single-income couple, according to the Committee for a Responsible Federal Budget, a group that studies federal budget and fiscal issues.
[]Social Security’s trustees project that the Old-Age and Survivors Insurance (OASI) trust fund will deplete its reserves by 2033, when today’s 57-year-olds reach the normal retirement age and today’s youngest retirees turn 72.
[]“Every year we wait, it gets harder to fix,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget. “It takes bipartisan trust and leadership. Both of which are in short order these days.”
[]Read: Social Security is now projected to be unable to pay full benefits a year earlier than expected
[]When the trust fund hits insolvency, beneficiaries of that program would get 77% of scheduled benefits. That means that all 70 million retirees, dependents, and survivors – regardless of age, income, or need – will see their benefits cut by 23%.
[]The cuts would differ for couples at different income levels. A low-income, dual-income couple retiring in 2033 would see a $10,600 cut while a high-income, dual-income couple retiring in 2033 would see their annual benefits reduced by $23,000, the CRFB said.
[]Although the cut for a low-income couple would be smaller, it would represent a larger share of their income – and so senior poverty would rise significantly upon insolvency, the group said.
[]Social Security’s average monthly benefit is $1,789, according to the Senior Citizens League.
[]Read: Social Security’s COLA could be about 3% in 2024 — after an 8.7% increase in 2023
[]Adjusted for inflation, the CRFB estimated a typical dual-income couple would face a $14,000 cut, while low-income couples would face a $8,500 cut and high-income couples would face a $18,500 cut.
[]The issue of Social Security has grabbed headlines this year following President Joe Biden’s State of the Union address, in which he vowed to protect Social Security and Medicare.
[]But protecting Social Security by leaving it untouched is not the same as fixing it, the CRFB said.
[]Enacting changes to the federal retirement program often is referred to as the “third rail of politics” because the issue is so politically charged. The White House is against cutting benefits and sees an increase in the retirement age as such a move.
[]Various proposals have emerged from lawmakers such as Sens. Elizabeth Warren, a Massachusetts Democrat, and Bernie Sanders, a Vermont independent who caucuses with the Democrats, who seek to strengthen Social Security by raising the top rate of income tax by a third, and the top rate of capital-gains tax by more than a half.
[]Meanwhile, Sens. Angus King and Bill Cassidy, a Maine independent and a Republican from Louisiana, respectively, are among other senators exploring ways to shore up Social Security through means such as placing $1.5 trillion over five years in an investment fund separate from the Social Security trust fund.
[]“We know how to fix it. The most practical way is a blend of everything — raise revenues, raise the retirement age for the youngest workers to account for increased longevity, make a blend of tweaks and return the program to solvency,” MacGuineas said. “The longer we wait, the harder it is to achieve those goals.”
[]The winner of the 2024 presidential election will face a Social Security trust fund rapidly approaching insolvency, MacGuineas said.
[]“If the next president chooses not to lead on this issue, we’re screwed,” MacGuineas said.
[]While there’s a “growing understanding” in Washington that moves need to be made to shore up Social Security, so far there hasn’t been any significant action, MacGuineas said.
[]“I’m more hopeful than normal. It’s getting so close. The numbers are bad. Waiting is bad for everyone,” MacGuineas said.
[]The last major changes to bolster Social Security’s finances were made in 1983. Part of those changes included a gradual increase of the full retirement age to 67 from 65.
I inherited money from my father. How do I avoid a ‘tax bomb’ with RMDs?
[]Exercising Roth conversions can be a sound strategy.
[]Jessica Hall is a retirement reporter for MarketWatch.
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