A 22% Social Security Reduction Could Turn a $2,548 Benefit Into $1,987 — What Retirees Should Know

Your Social Security estimate can start to feel like a guarantee once your retirement plans are built around it. Many people already match that monthly benefit against expected expenses and count the years until they can finally stop working.

But a recent New York Times analysis shows how a benefit cut years into retirement could disrupt those plans. For retirees who depend on Social Security alone, losing part of that income could be especially hard. Here’s what to know about the possible reductions.

How a projected 22% cut would affect one retiree

The New York Times analysis, based on modeling by Morningstar researcher Jack VanDerhei, examined how Social Security cuts could hit a middle-income retiree.

The example follows a 64-year-old worker who earned about $75,000 a year over her career and expects a monthly benefit of $2,548 when she claims at 67.

By the time she reaches 70, Social Security’s retirement trust fund is projected to be out of reserves. If lawmakers do nothing, the program could have enough money to pay only 78% of scheduled benefits, which would reduce her monthly check from $2,548 to about $1,987.

That would mean:

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

With decades of retirement potentially still ahead, she would need to cover her costs with $6,732 less income every year.

Why a smaller Social Security check could hurt so much

In Morningstar’s example, the retiree has only $20,000 in savings, which adds about $70 a month in income. Because Social Security covers nearly all of her expenses, a cut would leave her with roughly $2,057 a month to live on, down from about $2,620.

Replacing that gap would not be easy, especially when most income goes toward housing and everyday necessities. Using the commonly cited 4% retirement withdrawal rule, she would need about $168,300 in additional savings to make up the lost benefits.

Middle-income households depend heavily on Social Security

Social Security was designed to replace a larger share of income for lower earners, but many middle-income retirees also rely heavily on it because they have limited savings to fall back on.

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

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

The percentage reduction would be the same for everyone, but retirees with a pension or other savings may be better able to handle the loss than those who rely on Social Security for most of their spending.

Why the trust fund shortfall is projected

Social Security is funded mostly through payroll taxes paid by workers. However, the program now pays out more in benefits than it collects, so it has been drawing on trust fund reserves to cover the gap.

The trustees expect those reserves to be exhausted in 2032, which would leave the program without enough money to pay full benefits under current law.

Congress could still avoid that outcome by changing the program’s funding or rules, so the projected cuts are not certain. For now, they represent what could happen if lawmakers fail to act before the reserves run dry.

What to review if future benefits are reduced

Check your estimated monthly benefit in your my Social Security account at SSA.gov, then see what your retirement budget would look like with 22% less income. That can help you estimate how much extra savings you might need.

If you are still working, putting a little more into retirement savings could help offset some of the gap. You may also want to consider whether working one more year would give you more money to live on in retirement.

Why fear of cuts should not push you to claim early

Concerns about future benefit cuts may make claiming Social Security at 62 seem safer, but filing early locks in a permanently reduced monthly benefit.

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 raises it further.

Instead of changing your claiming strategy because of a possible cut, think about how long you can comfortably wait based on your health and finances. A larger monthly benefit can be especially valuable if you expect to depend heavily on Social Security throughout retirement.

Bottom line

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

For now, finding ways to free up room in your retirement budget could help you save a little more without major sacrifices. And if lawmakers prevent cuts, you’ll have extra savings to use for the retirement you worked so hard to build.

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