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Retirement benefits for recipients of the U.S. Social Security program must be scaled back by 2033 if there is to be any chance of sustaining full retirement benefit payouts, but a consistent lack of attention by both chambers of Congress could necessitate a benefit cut if inaction persists over the next nine years.
This is according to a new report by CNBC, citing recent research from the American Enterprise Institute (AEI) and discussions with members of the Bipartisan Policy Center (BPC).
Current projections from the Social Security Administration (SSA) say that full benefit payments will need to be reduced by 2033. If Congress does nothing by that time, then benefits will need to be reduced across the board by 21%.
For a nation already embroiled in what many are calling a “retirement crisis,” the benefit cut would play havoc with the finances of those living on a fixed income. The cut would “double the elderly poverty rate and reduce median senior household income by nearly 14%,” CNBC said based on AEI research.
But if executive action is taken prior to 2033, then the benefit cut may not need to happen at all, AEI said. Benefits could be reallocated so that poverty increases for low earners could be avoided, and the effect on the middle class could be minimal, according to Andrew Biggs, senior fellow at AEI and co-author of its report.
“It means big cuts on very rich people, but it avoids what you might think of as a retirement crisis, where everything is thrown into upheaval,” Biggs told CNBC.
The hope, Biggs said, is that a new president and new Congress will more proactively address these challenges once they enter office starting in January.
Shai Akabas, executive director of the BPC’s economic policy program, agreed. The cuts would be “untenable and unsustainable, both politically and financially from a household perspective,” he told CNBC.
If a consensus is not reached by Congress, the president in 2033 could choose to cap payments at $2,050 per month to avoid the worst impacts of reduced benefits, according to the AEI report. This would reduce benefit payments for people who typically get more than that amount, but it would also preserve full payments for roughly half of all beneficiaries, the report noted.
