Potential cuts to Social Security benefits are looming if Congress doesn’t address the funding shortfall soon. If no changes are made, Social Security recipients could see a 17% reduction in benefits by 2035, reducing the average monthly benefit from $1,907 to $1,583. Congress needs to act immediately, considering options like increasing payroll taxes or reducing benefits, to prevent significant financial hardships for retirees.

Transcript:

Hello, everyone.

Today we’re discussing a critical issue affecting millions of Americans, the potential cuts to Social Security benefits if Congress doesn’t act soon.

So let’s dive into the details and understand the urgency of the situation because the headline cutting benefits is quite scary.

Austin, what are we looking at?

Eric, you and I have talked about the Social Security funding shortfall, and let’s be clear, this is a major consideration for retirees and federal deficits.

The bottom line is that Social Security recipients could face a significant reduction in their monthly benefits in roughly a decade if no changes are made to how Social Security is funded and allocated to retirees.

Based on today’s average monthly benefit of $1,907, that 17 percent projected cut in roughly a decade would reduce the typical check for Social Security recipients to $1,583.

That amounts to a loss of $324 per month, or $3,888 per year.

Now, what we are, of course, talking about here is that Social Security is projected to have a funding shortfall of roughly 17% in a decade unless changes are made.

So the combined trusts for Social Security are expected to be insufficient in 2035.

And at that point, only 83% of benefits would be payable, not the maximum amount that individuals are owed.

And hey, as we’ve talked about in the past, Social Security is, you know, for recipients who live on Social Security, this is not an overly generous program.

Many people are still struggling to make ends meet, even at these levels.

So that 83% payout, it really does cut substantially into your lifestyle and retirement.

So although that decade off might seem like a long time, delaying action today will only compound and complicate the situation.

So the chief actuary for the Centers for Medicare and Medicaid Services warned that postponing a response to this funding would necessitate more drastic measures later.

So the bottom line is, if we want to solve that funding shortfall, we need to do something today.

It’s easier to act today in a modest level to get the funding where it needs to be in roughly a decade than it is, you know, let’s say eight years from today when that funding shortfall is only two years out and becomes imminent.

So Congress has two primary options to address the funding shortfall.

One is increasing revenues through higher payroll taxes or reducing benefits to retirees.

That second option is very unpopular.

And then the House Budget Committee has passed a bill proposing a bipartisan financial commission to help develop policy recommendations.

But the full House has yet to vote on it.

And of course, hey, it’s Washington.

What’s actually going to get done? We’ll see.

So there is some historical context here, but it goes back quite a ways.

So the last significant overhaul of Social Security was in 1983, when the federal government gradually raised the eligibility age from 65 to 67.

So all the way back in 1983, we raised the age two years.

So that action was taken when Social Security insolvency was imminent.

So there is precedent for doing this.

That’s over 40 years ago.

So, you know, it is infrequent that we are able to make these changes to really make Social Security the program it needs to be for retirees.

And the bottom line is we need bipartisan cooperation for this to happen.

Both Democrats and Republicans acknowledge the unsustainable nature of the current situation.

But there’s totally different ideas on how to address it, whether it’s cutting benefits or raising the retirement age or raising taxes.

So we need to act now if we have any hope of solving that roughly four thousand dollar problem.

Shortfall that retirees will face.

Yeah, so I think in summary, it’s facing a critical funding challenge that requires that immediate bipartisan action.

But, you know, it looks like we’ve got a gap that it’s 2033 or 2035.

So there’s years to make this happen.

And it’s probably going to come down to some combination, as you mentioned, of a tax address and also potentially raising the full eligibility age.

You know, Austin, it’s not a great situation, but I think it’s something it’s at least heartening to see Congress assessing some policy situations, because if they do nothing, this is going to be a very ugly situation.

Awareness is the first issue, and they are aware of the problem.

Whether or not they can actually put the votes together and the team together to solve this on behalf of retirees is a whole other matter.

But hey, one step at a time.

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