As financial literacy improves every day and people seek out the best ways to handle retirement, it is important to stay informed about the changes that affect us and how to best make the most of the situation. It is a well-known fact that not enough Americans have savings to fully supplement their Social Security benefits, and even if they do, they don’t have enough savings to cover expenses.
Experts estimate that most people will still need to have, at a minimum, 70% to 80% of their pre-retirement income when they eventually retire, but Social Security only covers about 40% of pre-retirement income. And if this is a concern for many people (what happens to the other 40% and how do I cover it?), things could get worse quickly and this gap could get even bigger.
Social Security Trustee’s Report
The Social Security Trustee Report is published annually by the Social Security Trustees to inform other agencies and the public of the current status of the program and its future projections. But recent reports have not been encouraging.
The 2024 report is a bit more upbeat than the previous one, as it acknowledges the efforts the current administration is making to improve the economy and Social Security’s collection strategy, but ultimately, benefits as we know them are only around for a very short time. The trust fund that supports Social Security is expected to run out of funds as early as 2035, one year longer than the time frame indicated in the 2023 report, and the revenue sources that support it are not enough to continue paying 100% of the benefits that pensioners currently receive. Since the law does not allow Social Security to borrow to pay benefits, the only solution would be to cut them to the maximum amount they can afford.
It is estimated that the Social Security Administration would have the funds to pay 79% of scheduled benefits if the Old Age and Survivors Insurance (OASI) Trust Fund were depleted. This is a depressing figure, given that most benefits are not that high to begin with, and that the majority of pensioners who would actually be affected are already recipients of other hardship-related benefits.
Merging the Old Age and Survivors Insurance (OASI) Trust Fund with the fund that supports the Disability Insurance Program (which provides most hardship-related benefits) would mean that cuts to benefits would be less severe when the funds ran out, and retirees would receive about 83 percent of their benefits. While still not enough to live comfortably for many, the situation would certainly be less dire.
But this funding combination has not been approved by lawmakers and still would not solve the program’s solvency problems.
So, will these cuts to Social Security benefits come to fruition?
It’s highly unlikely that the cuts outlined in the Trustee’s Report will come to fruition. Lawmakers have been concerned about the system’s future since it was created, and there have already been times when the law has had to be changed to improve funding or increase revenue sources to stay solvent. The last time was in the early 1980s. The system is one of the most popular in the country, and seeing it abolished would not help anyone. But preparing for the worst is never a bad idea, because if some of the cuts do come to fruition, they would give retirees and other pension recipients more options in the future.
