A 22% Social Security Cut Could Shrink a $2,548 Check to $1,987 - Here’s What That Means for Retirees

Your Social Security estimate can start to feel like a promise once you've built your retirement plans around it. You may have already compared that monthly check with your expected expenses, counting down the years until you can finally leave work behind.

But a recent New York Times analysis shows how a benefit cut years into retirement could throw those plans off course. For retirees living on just Social Security, losing part of that income could be especially difficult. Here's what you should know about the potential cuts.

How a projected 22% cut changes one retiree's income

A recent New York Times analysis used modeling by Morningstar researcher Jack VanDerhei to show how Social Security cuts could affect a middle-income retiree.

The example follows a 64-year-old worker who earned around $75,000 a year during her career and expects to receive $2,548 a month when she claims benefits at 67.

By the time she turns 70, Social Security's retirement trust fund is projected to run out of reserves. If Congress doesn't act, the program could have enough money to pay only 78% of scheduled benefits, reducing her monthly check from $2,548 to about $1,987.

For this retiree, that would mean:

• $561 less per month
• $6,732 less per year

And with potentially decades of retirement still ahead, she'd have to find a way to cover her expenses with $6,732 less coming in each year.

Why a smaller Social Security check could be especially difficult

The retiree in Morningstar's example has just $20,000 in savings, providing around $70 a month in additional income. With Social Security covering nearly all her expenses, a benefit cut would leave her with roughly $2,057 a month to live on, down from about $2,620.

Making up that difference wouldn't be easy, especially when most of your income goes toward housing and everyday necessities. Under the commonly used 4% retirement withdrawal guideline, she'd need approximately $168,300 in extra savings to replace the lost benefits.

Middle-income households have a lot riding on Social Security

Social Security was built to replace more of the income of lower earners, but many middle-income retirees still depend heavily on their checks because they have relatively little savings to fall back on.

According to the Census Bureau, Americans ages 65 to 74 received about half their income from Social Security and similar programs in 2022. Reliance on Social Security also tends to grow with age, with an SSA study finding that 61% of people over 80 depended on it for at least half their family income.

Morningstar modeled how a 22% benefit cut could affect retirees at different income levels:

The percentage cut would be about the same for everyone, but retirees with a pension or other savings to fall back on may have an easier time covering the loss than those who rely on Social Security for most of their expenses.

What's behind Social Security's projected 2032 shortfall

Social Security gets most of its money from payroll taxes paid by people who are still working. But the program now pays out more in benefits than it collects, so it's been using its trust fund reserves to make up the difference.

The trustees expect those reserves to run out in 2032, leaving Social Security without enough money to pay everyone their full benefits under current law.

Congress could still prevent that from happening by changing how the program is funded or adjusting its rules, so the projected cuts aren't a done deal. For now, they show what could happen if lawmakers don't make changes before the reserves are exhausted.

What to check now if future Social Security payments fall

Check your estimated monthly benefit through your my Social Security account at SSA.gov, then see how your retirement budget would look with 22% less coming in. This can help you work out how much additional savings you might need.

If you're still working, putting a little more into retirement savings could also help cover some of that difference. You might also consider whether working an extra year would give you more money to live on once you retire.

Why you shouldn't rush to claim Social Security out of fear

Worries about future benefit cuts might make claiming Social Security at 62 seem like a safer choice, but filing early means accepting a permanently reduced monthly payment.

If you were born in 1960 or later, waiting until your full retirement age of 67 gives you 100% of your calculated benefit, while delaying until 70 increases it further.

Rather than changing your claiming plans because of a possible cut, think about how long you can comfortably wait based on your health and finances. A larger monthly benefit could be especially helpful if you expect to rely heavily on Social Security throughout retirement.

Bottom line

Retirement is supposed to be the time when years of hard work finally pay off, not when you have to worry about whether your Social Security check will cover the same expenses it did last year. The possibility of a cut is concerning, but Congress still has time to find a solution before retirees lose any benefits.

For now, looking for ways to free up your retirement budget could help you put a little more aside without making big sacrifices. And if Congress prevents the cuts, you'll have extra savings to spend on the retirement you've worked so hard for.

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