Social Secuirty is the main source of income for millions of retired Americans, who rely on it to get by.
The coronavirus pandemic has had a devastating impact on the economy, throwing millions into poverty — and the United States has still not recovered from it.
Any cuts to Social Security would affect millions of retirees, but they may be necessary in order to save the program. In fact, according to several experts, Social Security benefits will have to be reduced unless the government intervenes.
Read more below.
Slashing Benefits
As reported by Yahoo Finance, a new report from Social Security and Medicare trustees shows that benefits will have to be cut by 2034, if Congress doesn’t intervene.
Absent action from Congress, the combined trust funds for Social Security will be able to pay approximately 78 percent of benefits, which would be a significant reduction.
The report disturbed seniors and those who plan to retire soon. In addition, Treasury Secretary Janet Yellen said that one of the risks of the ongoing standoff about the debt ceiling could be that "nearly 50 million seniors could stop receiving Social Security checks for a time."
Social Security Funds
Though benefits might have to be reduced, that doesn’t necessarily mean Social Security funds will run out completely, according to Monotelo Advisors, a financial and tax planning firm.
Monotelo recently said on its website that the Social Security Administration would be able to pay most of the promised benefits, even if "the only funds available to Social Security by the middle of next decade are the current wage taxes being paid in."
"While a 25 percent reduction in benefits could significantly hurt the retirement plans of those who are relying on their Social Security benefits, it is far less damaging then the program being shut down entirely," Monotelo explained.
Other Experts Agree
Retirement strategist at Edward Jones Scott Thoma echoed Monotelo, saying that Social Security will most likely not go bankrupt anytime soon.
"There are changes that can be made to put the program on solid footing. In order for the program to remain fully funded through the 75-year projection period, payroll taxes would need to rise about 3.36 percent, or just under 1.7 percent for both the employer and employee, to fully fund the program. If no changes are made, benefits would need to be cut by 24 percent starting in 2034."
Benefits Boost
The administration announced last week that Social Security benefits will increase by 5.9 percent in 2022, which will be the biggest boost of benefits since 1982.
President of Social Security Works Nancy Altman welcomed the increase, but warned that it should have been higher, mostly because costs and prices are going up due to inflation.
Yellen warned earlier this month that inflationary pressures will most likely last a while but still described the trend as only "transitionary," as reported by CNBC.
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