Millions of Americans could see their Social Security benefits reduced by an average of about $500 per month starting in 2032, according to a new analysis by the Committee for a Responsible Federal Budget (CRFB).
The fiscal policy think tank warned that the Social Security retirement trust fund could become insolvent by the end of 2032. If that happens, benefit payments would be automatically reduced. The program would no longer have sufficient reserves to cover scheduled payments. This could happen if Congress does not take action to address the program’s funding challenges.
The CRFB estimated that the average reduction would amount to a 24 percent cut in monthly benefits. Retirees across every state would be affected.
“No state would be spared from the potentially devastating effects of insolvency,” the organization said in its report. It added that lawmakers have less than seven years to enact reforms. Those reforms could prevent the projected cuts.
According to the analysis, average monthly benefit reductions would exceed $500 in 29 states. The largest projected cuts would occur in Connecticut, Delaware, Maryland, Massachusetts, Michigan, Minnesota, New Hampshire, New Jersey, Utah, and Washington. Connecticut retirees would face the largest average reduction at $556 per month. New Jersey would follow at $554, and New Hampshire at $553.
The think tank also found that more than 15 percent of residents would be affected by the reductions in 47 states. Delaware, Maine, Michigan, Montana, New Hampshire, Pennsylvania, South Carolina, Vermont, West Virginia, and Wisconsin would see some of the largest shares of their populations impacted.
In addition, the report projected that the total reduction in Social Security payments would exceed 1 percent of gross domestic product in 40 states. Alabama, Arkansas, Idaho, Maine, Michigan, Mississippi, Montana, South Carolina, Vermont, and West Virginia would experience some of the largest economic effects.
The analysis comes ahead of the Social Security Administration’s annual Trustees Report. The report is expected to provide an updated estimate of when the retirement trust fund could become insolvent.
Last year’s trustees report projected that the Old-Age and Survivors Insurance Trust Fund would be depleted in 2033. It would then be able to pay only 77 percent of scheduled benefits. More recent projections have moved the insolvency date to the end of 2032.
While insolvency would not mean Social Security payments stop entirely, benefits would be reduced to match incoming payroll tax revenue. The program would continue collecting taxes and paying benefits. However, payments would be made at a lower level unless lawmakers intervene.
The potential cuts could have a significant impact on retirees. A survey conducted by The Senior Citizens League found that 73 percent of retirees rely on Social Security for more than half of their monthly income. About 39 percent reported depending on the program for all of their income.
According to the Social Security Administration, more than 70 million Americans receive Social Security benefits each month.
Social Security Commissioner Frank Bisignano previously described the stability of the trust funds as a top priority for the Trump administration. He also called on Congress to take action.
“Congress, along with the Social Security Administration and others committed to eliminating waste, fraud, and abuse, must work together to protect and strengthen the trust funds for the millions of Americans who rely on it—now and in the future—for a secure retirement or in the event of a disability,” Bisignano said in a statement last year.
Policymakers have proposed a range of solutions to address Social Security’s long-term funding gap. One proposal would eliminate the income cap on Social Security payroll taxes. The cap currently exempts earnings above $184,500 from the tax. However, Congress has not yet reached agreement on a long-term fix.