Social Security Trustees Warn of a 22% Benefit Reduction in 2032. A Different Change Could Lower the Cut to 17%

Millions of older Americans depend on Social Security for retirement income. Without those benefits, many would struggle to cover even basic living costs.

However, the program is headed toward a serious funding shortfall that could reach a critical point within a few years. Retirees may need to prepare for the possibility of benefit reductions.

There is one possible step that could lessen the size of those cuts, although it is far from certain to happen.

Why Social Security could face cuts, and how severe they may be

The funding problem largely comes down to a shrinking workforce. Social Security depends mainly on payroll tax revenue. But as more workers age into retirement and fewer replacement workers join the labor force, the program will come under increasing pressure. Once the trust fund is exhausted, incoming tax revenue is not expected to be enough to support scheduled benefits.

In its latest report, the Social Security Trustees projected that the Old-Age and Survivors Insurance (OASI) Trust Fund will be depleted in the fourth quarter of 2032. After that point, Social Security could face a 22% cut in benefits.

One change could soften the cut

The OASI Trust Fund pays Social Security retirement benefits. A separate account, the Disability Insurance (DI) Trust Fund, is used for disability payments.

If those two trust funds were merged, Social Security would be able to pay full retirement benefits for nearly two additional years. After that, the benefit reduction would be 17% instead of 22%.

The catch is that Social Security cannot combine the funds on its own. Congress would have to approve the change.

And while merging the OASI and DI funds would reduce the size of the cut, it would not eliminate it. It would only delay the shortfall slightly while shifting part of the strain to a different timeline.

It would also put the DI Trust Fund at risk of being depleted far earlier than it otherwise would be. Under current projections, the Trustees say the DI Trust Fund could last at least through 2099 if left unchanged.

Still, lawmakers may be reluctant to pursue this option because a 17% cut would remain deeply damaging for millions of older Americans, as well as for future retirees. If Congress does act, it will likely aim for a solution that prevents Social Security benefit cuts altogether.