AARP Warns a Balanced-Budget Proposal Could Threaten Social Security Benefits

Calls to rein in federal spending may sound appealing to retirees who want a stronger economy supporting their retirement security. Still, AARP says one proposed solution could create new risks for Social Security.

The organization has long opposed a constitutional balanced-budget amendment, arguing that it could leave retirees' benefits more vulnerable when Congress faces difficult budget choices.

That warning comes at a time when Social Security is already dealing with a financing shortfall, adding another concern for older Americans to watch.

What a balanced-budget amendment would do

A balanced-budget amendment would add a constitutional requirement that the federal government keep annual spending in line with the revenue it takes in. Under current rules, Congress can spend more than it collects and borrow to make up the difference.

If revenues fell short under such a rule, lawmakers would generally have two options:

• Raise more revenue: Some proposals would require a supermajority vote to increase taxes, making new revenue harder to approve.
• Cut spending: Congress could reduce federal outlays until the budget is balanced.

For many retirees, the central question is whether Social Security would become one of the programs targeted for cuts.

Why Social Security could be at risk

Social Security is the federal government's largest spending program and provides benefits to more than 70 million Americans. If Congress had to close a large budget gap quickly, it could be difficult to leave a program that large untouched.

The Center on Budget and Policy Priorities says a strict balanced-budget rule would not automatically shield Social Security or Medicare. Protecting Social Security would require lawmakers to find much deeper savings elsewhere in the federal budget.

Many versions of a balanced-budget amendment would also make tax increases harder by requiring a two-thirds vote in Congress. If raising revenue becomes more difficult, lawmakers may rely more heavily on spending cuts, which is where AARP sees the danger for Social Security.

Why the pressure could come from two directions

Even under current law, Social Security is already on course for benefit reductions. The retirement trust fund is projected to run dry in the early 2030s, after which benefits would automatically fall to about 78% of scheduled payments.

A balanced-budget amendment could make that challenge harder to manage by giving Congress less flexibility when Social Security spending is greater than incoming revenue.

Depending on how the amendment is written, lawmakers could face greater pressure to cut spending rather than lean on borrowing or other budget tools while searching for a longer-term solution.

In that scenario, Social Security could face its own funding shortfall at the same time Congress is bound by a constitutional requirement to balance the budget, increasing the chance that benefit cuts become part of the answer.

Others have raised similar concerns

AARP has long argued that Social Security should not be used to fix unrelated problems in the federal budget. Because workers pay into the program through dedicated payroll taxes, the group believes those benefits should not be vulnerable to broad spending cuts.

The AFL-CIO voiced a similar concern when opposing a balanced-budget amendment considered by the House, warning that it would lead to major cuts to Social Security, Medicare, Medicaid, and other essential programs if lawmakers could not raise revenue.

The Coalition on Human Needs, an anti-poverty group, has also called on Congress to reject the amendment, citing the impact that spending cuts could have on millions of Americans who rely on federal benefits.

How AARP says Social Security should be strengthened

AARP says Congress should reinforce Social Security without reducing the benefits people have earned. The group has backed proposals that would bring more money into the program, including ideas that would require higher earners to contribute more.

The organization also says any changes to Social Security should go through the normal legislative process, giving lawmakers and the public time to assess the effect on retirees. In AARP's view, the program's financing problem should be addressed directly instead of being folded into a broader budget fight.

How to pressure-test your retirement plan

Any balanced-budget amendment would still face a long path before it could affect Social Security. It would need approval from two-thirds of both the House and Senate, then ratification by 38 states.

Your benefits are still calculated under current law, but it can be useful to plan for the funding risk Social Security already faces. Reviewing your projected benefit and seeing how your budget would hold up at roughly 80% of that amount can give you a clearer picture of your flexibility.

If your retirement plan can withstand a smaller check, you may be better prepared for future changes to the program.

The bottom line

A balanced-budget amendment could eventually affect the Social Security checks millions of people rely on each month. AARP worries that if lawmakers have fewer options for closing budget gaps, Social Security could become a target for savings.

That concern matters even more if you expect to live mainly on Social Security, because a smaller payment could make everyday expenses harder to cover. These proposals would take time to advance, though, and each year before retirement offers another chance to strengthen your finances beyond Social Security alone.

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