Millions of older Americans depend on Social Security to cover their everyday expenses, but a looming funding shortfall could lead to a 23% cut in monthly benefits as soon as 2033. This reduction could drain hundreds of dollars from retirement income each month, significantly affecting retirees’ financial stability.
Why Does Social Security Face a Potential Cut?
The Social Security trustees have warned that the Old-Age and Survivors Insurance (OASI) Trust Fund will run out of reserves by 2033. Even after the trust fund depletes, Social Security taxes from current workers will continue to fund the system, but these taxes won’t generate enough to cover full benefit payments. As a result, Social Security will have to reduce monthly payments by 23% across the board unless new legislation is passed.
What Caused This Funding Crisis?
Several factors have contributed to the Social Security funding crisis:
The Growing Number of Retirees: The 65+ population in the U.S. increased from 43 million in 2010 to 59 million in 2024. As more people retire, the pressure on Social Security grows.
Fewer Workers Paying Into the System: The ratio of workers paying into Social Security compared to beneficiaries has dropped. In 2010, there were 2.9 workers per beneficiary, but by 2024, that number had fallen to 2.7. Fewer people are contributing to the system while more people are drawing benefits.
Longer Life Expectancy and Lower Birth Rates: People are living longer, and fewer children are being born, further exacerbating the imbalance between those paying into the system and those collecting benefits.
How Much Would Retirees Lose?
If the 23% benefit cut occurs, here’s how it would affect different groups, based on June 2025 averages:
Retired Worker:
Before Cut: $2,005.05
After 23% Cut: $1,543.89
Spouse of Retired Worker:
Before Cut: $953.33
After 23% Cut: $734.06
Nondisabled Widow/Widower:
Before Cut: $1,863.18
After 23% Cut: $1,434.65
Child of Deceased Worker:
Before Cut: $1,138.30
After 23% Cut: $876.49
Despite annual Cost-of-Living Adjustments (COLAs), retirees may not see an increase in their buying power. In fact, inflation often cancels out the COLA increases, making the impact of the cut even more significant for most beneficiaries.
What Solutions Could Prevent a Cut?
Congress holds the key to preventing these cuts, and several solutions could help secure Social Security’s future:
Raise the Social Security Payroll Tax Cap: Increasing the cap on taxable income would generate more revenue for Social Security.
Increase the Full Retirement Age: Raising the age at which individuals can begin collecting full benefits could help reduce the financial burden on the system.
Reduce Benefits for High-Income Earners: Cutting benefits for higher earners could free up funds for lower-income recipients.
Supplement the Trust Fund Using General Tax Revenue: Allocating funds from general tax revenue could help cover the gap in Social Security funding.
However, Congress has yet to pass any permanent solutions, and without action, these potential cuts may become a reality.
What About Disability Benefits?
Unlike retirement benefits, Social Security Disability Insurance (SSDI) is expected to remain stable for at least 75 years. However, SSDI funds do not cover retirement benefits, so the retirement system still faces significant financial risks.
What Happens Next?
The U.S. has fewer than eight years to reform the retirement trust fund before it begins depleting its reserves. If lawmakers act soon, they can avoid drastic cuts and ensure long-term sustainability for the Social Security system. However, every year without action makes the solution harder to implement.
