Congress Could Delay Social Security Cuts by 2 Years - But There's a Catch

When you think of the senior benefits that are available today, it's easy to focus on Social Security. Without Social Security, many retirees would not be able to pay their bills or afford even basic expenses.

Unfortunately, Social Security is in trouble. The program's Trustees say that without intervention from Congress, the program may have to cut benefits as early as late 2032. One potential solution could buy Social Security more time before benefit cuts come into play, but the net gain may not be substantial enough to warrant it.

Why Social Security faces a financial shortfall

In their most recent report, the Social Security Trustees explained that benefits could be looking at a 22% cut by the last quarter of 2032, which is when the program's Old-Age and Survivors Insurance (OASI) Trust Fund is expected to run out of money. Social Security can still pay benefits once its OASI Trust Fund is depleted. But its main revenue stream, payroll taxes, is expected to shrink, leading to the aforementioned cuts.

Lower birth rates and stricter immigration policies have led to a labor force where there are fewer workers supporting retirees on Social Security. At the same time, Americans are living longer and therefore collecting benefits for longer, which puts more strain on the system. 

In the absence of raising taxes to fund Social Security or making other similarly harsh changes, the program may only be able to pay 78% of scheduled benefits by the end of 2032, potentially leaving retirees in a serious lurch.

How Social Security's trust funds work

Social Security gets most of its revenue from payroll taxes, but it also relies on its trust funds to keep up with expenses. For many years, Social Security collected more money in payroll taxes and other income than it had to pay out in benefits and other expenses. That led to the program's trust funds building up balances that Social Security can tap when it needs to close a funding gap.

Social Security operates through two legally separate federal trust funds, the OASI Trust Fund and the Disability Insurance (DI) Trust Fund. The OASI Trust Fund pays benefits to retired workers and survivors, while the DI Trust Fund pays benefits to eligible people with disabilities. Because these funds are separate entities, they cannot legally borrow from each other or get combined without approval from Congress.

What combining the trust funds does for Social Security

While the Social Security OASI Trust Fund is expected to run dry by the fourth quarter of 2032, the DI Trust Fund is expected to be able to pay 100% of benefits through at least 2100. 

The Social Security Trustees say that if the OASI Trust Fund and the DI Trust Fund projections are combined, the merged fund, which would be designated OASDI, would be able to pay 100% of scheduled benefits until the third quarter of 2034.

At that point, Social Security benefits would be looking at a 17% cut, as opposed to a 22% cut. So merging the funds does two positive things, potentially. It reduces the extent to which Social Security recipients might lose out on money, and it also keeps benefits payable in full a bit longer.

Why combining the trust funds may not be a great solution

Combining Social Security's trust funds might seem like a good way to improve the program's financial situation and at least delay benefit cuts for a period of time. The problem is that the DI Trust Fund is expected to be solvent for a good amount of time on its own. Combining it with the OASI Trust Fund means rerouting money that's specifically earmarked for disability benefits, thereby hitting people who are extremely vulnerable.

Furthermore, combining Social Security's two trust funds will only delay benefit cuts rather than prevent them. The program's Trustees say that Social Security would still face an actuarial deficit of 4.42% of taxable payroll even if the funds were to be merged. 

Lawmakers would need to implement other reforms to keep benefits payable in full, such as raising the payroll tax rate, increasing the Social Security wage cap, or raising the program's full retirement age for collecting benefits.

Bottom line

You may need your Social Security benefits in full to meet your retirement goals. But you should be aware that the potential for cuts exists, and that while lawmakers do have options for preventing or at least delaying program cuts, that's not a given.

As such, you may want to prepare yourself for Social Security cuts as early as 2032 if you know you'll be reliant on those monthly benefits to make ends meet. Even if the timeline ends up shifting slightly, it may not make a big difference in your overall financial situation. Your best bet is to plan on a 22% benefit cut in 2032 and make sure you have enough income to work around it.

You May Also Like

23 Ways To Get Money Without Getting A Second Job

By FinanceBuzz Editors

How To Save Money on Car Insurance: 12 Ways to Lower Rates

By Elyssa Kirkham

10 Things Seniors Born Between 1941-1969 Could Take Advantage Of

By FinanceBuzz Editors

19 Dumbest Things Smart People Waste Money On

By Team FBZ

7 Moves If You Want to Stop Living Paycheck to Paycheck

By FinanceBuzz Editors

7 Clever Ways to Crush Your Debt

By FinanceBuzz Editors

Save Money and Get Huge Discounts on Everyday Purchases

AARP Benefits

• Huge discounts on travel, groceries, prescriptions and more
• Access to financial planning resources and health tools
• Join AARP and get 25% off with automatic renewal

Become a member now!

---

Subscribe Today

Unlock the Best Banking Deals and Bonuses

From high-yield savings accounts to cashback checking and sign-up bonuses, we bring you the best banking offers to grow your money smarter.

or

SEE TOP BANKING OFFERS →

By submitting this form you agree to receive emails from FinanceBuzz and to the privacy policy and terms