A recent report from the Committee for a Responsible Federal Budget (CRFB) highlights concerns about the sustainability of Social Security, warning of potential cuts to benefits if necessary funding reforms are not implemented. The findings suggest that retirees in 2033 may face reductions of up to $18,100 annually for a couple with a medium dual income.
Single-income couples are projected to experience cuts of $13,600. These estimates reflect the growing financial pressure on Social Security and the need for immediate legislative action to prevent future income loss for millions of Americans. Newsweek also covered these alarming projections, stressing the urgency of finding a solution.
The Importance of Social Security
Social Security is essential for millions of Americans, providing a vital income stream in retirement. The program is funded by payroll taxes and government reserve funds, but according to the latest Social Security Trustees report, the OASI and DI trust funds are expected to run out of money by 2034.
Without action from Congress, this will result in an automatic 21% cut to benefits. However, the CRFB estimates the cuts to be even higher, at 24%, due to recent tax reforms.
Who Will Be Most Affected?
The amount of future benefit cuts will vary depending on factors like age, marital status, and employment history.
- A dual-income couple with medium earnings could lose up to $18,100 per year.
- A single-income couple would see a reduction of $13,600 annually.
- Couples with low incomes might face cuts around $11,000, while those with high incomes could experience losses of nearly $24,000 per year.
The low-income couples would feel the financial blow more acutely, as these cuts would represent a larger portion of their total income and lifetime earnings.
Why Are Cuts Projected to Be Worse?
The One Big Beautiful Bill Act (OBBBA), which recently passed, has added to the financial strain. This legislation includes tax cuts and an increase in the senior standard deduction, which reduces the revenue collected from the taxation of Social Security benefits. According to the CRFB:
“The tax rate cuts and increase in the senior standard deduction from the recently enacted OBBBA would reduce Social Security’s revenue from the income taxation of benefits, increasing the required cut by about a percentage point upon insolvency.”
If these changes are made permanent, the CRFB warns that the benefit cut could grow even larger. The report indicates that the 24% reduction stems from the OBBBA’s impact on the program’s finances, compared to the 21% cut forecasted by the Social Security Trustees.
Reactions From Stakeholders
Frank Bisignano, the Social Security Commissioner, recently said:
This is a historic step forward for America’s seniors. For nearly 90 years, Social Security has been a cornerstone of economic security for older Americans. By significantly reducing the tax burden on benefits, this legislation reaffirms President Trump’s promise to protect Social Security and helps ensure that seniors can better enjoy the retirement they’ve earned.
However, the CRFB has criticized policymakers who are unwilling to make necessary changes to Social Security. Their report states:
Policymakers pledging not to touch Social Security are implicitly endorsing these deep benefit cuts for 62 million retirees in 2032 and beyond. It is time for policymakers to tell the truth about the program’s finances and to pursue trust fund solutions to head off insolvency and improve the program for current and future generations.
Proposals for reform
Several legislative measures are being explored to address the financial strain on Social Security. One plan, the Medicare & Social Security Fair Share Act, would impose payroll taxes on wages and investment income exceeding $400,000.
Another bipartisan proposal, led by Senators Bill Cassidy and Tim Kaine, suggests creating a $1.5 trillion investment fund. This fund would be established by the Treasury and invested across a broad portfolio of assets, aiming to generate higher long-term returns to stabilize Social Security.
After 75 years, the Treasury would be repaid, and the accumulated gains would go toward supporting Social Security benefits.
Santander’s Role in Financial Discussions
In light of these developments, Santander has offered its financial expertise to policymakers, advocating for sustainable investment strategies to safeguard programs like Social Security.
Their investment divisions have worked closely with various legislators, including those involved in discussions surrounding the $1.5 trillion investment fund, to ensure a steady, long-term return on investments that would benefit the Social Security program.
