Social Security Trustees Warn of 22% Benefit Reduction in 2032, Though One Change Could Limit It to 17%

Key Points

• The Social Security Trustees say the program is heading toward a funding shortfall because the workforce is shrinking.

• The Old-Age and Survivors Insurance Trust Fund is projected to be depleted by 2032, when benefits could be reduced.

• Congress could take action to soften the size of those cuts, but that would not fully fix the problem.

Millions of older Americans depend on Social Security as a major source of retirement income. Without those payments, many would struggle to cover even the most basic expenses.

That said, the program is confronting a serious financial problem that could reach a breaking point within a few years. Retirees may need to prepare for the possibility of lower benefits.

There is, however, one possible change that could lessen the severity of the cuts. The catch is that there is no assurance it will ever happen.

Why Social Security is under pressure

The threat to Social Security benefits stems largely from a shrinking labor force. Payroll taxes provide most of the program’s income, but as more older workers retire and fewer replacement workers join the labor pool, the system comes under increasing strain. Once the trust fund is exhausted, the program is not expected to collect enough in taxes to pay scheduled benefits in full.

In its latest report, the Social Security Trustees projected that the Old-Age and Survivors Insurance Trust Fund would be empty by the fourth quarter of 2032. If that happens, benefits could be reduced by 22%.

How one change could reduce the cut

Social Security’s retirement benefits are paid from the OASI Trust Fund. Disability benefits, meanwhile, come from a separate Disability Insurance Trust Fund.

If Congress were to merge the two trust funds, retirement benefits could be paid in full for nearly two additional years. After that, the benefit reduction would be 17% instead of 22%.

Still, that outcome would require lawmakers to approve the change. The two funds cannot simply be combined on their own.

And even if the trust funds were merged, it would not eliminate benefit cuts altogether. It would only reduce them and push back the date of depletion somewhat.

Such a move would also bring the Disability Insurance Trust Fund closer to depletion than it otherwise would be. The Trustees currently project that, if left unchanged, that fund could last at least through 2099.

Lawmakers may be reluctant to pursue that option because a 17% cut would still be devastating for millions of older Americans, along with future retirees. If Congress acts, it will likely prefer a solution that avoids benefit cuts entirely.