Social Security serves as a key income source for millions of retired Americans. Without those benefits, many seniors would struggle to cover even basic expenses like housing and food.
Each year, the Social Security Trustees release a report that reviews the state of the program's finances. This year's report contains some unfortunate news for seniors. However, the news also isn't totally bleak.
The bad news: Benefit cuts may be coming
Social Security gets most of its funding from taxing wages. But as older workers wrap up their careers in the coming years and make a fairly rapid labor force exit, payroll tax revenue is likely to shrink.
Social Security can turn to its trust funds to keep up with scheduled benefit payments in the absence of adequate payroll tax revenue. (Think of those trust funds as the program's emergency fund of sorts.) But once those trust funds are depleted, Social Security may have to cut benefits -- unless lawmakers are able to come up with a way to prevent that unwanted scenario.
To be clear, lawmakers are invested in preventing Social Security cuts. But many of the solutions they've proposed to avoid them have negative repercussions of their own.
One suggestion, for example, is to push back full retirement age (FRA) for workers born in 1960 or later from 67 to 68 or 69. FRA is when workers can claim their complete monthly Social Security benefit based on their individual wage histories. Moving FRA back could help the program's finances, but it would also force a lot of people to work longer than they want to.
Meanwhile, the 2024 Social Security Trustees Report states that the program's combined trust funds are likely to run out of money in 2035. Once that happens, benefit cuts may be unavoidable.
The good news: Benefit cuts might happen later and may be smaller than anticipated
Clearly, any sentence with the words "Social Security cuts" in it is going to be bad news to some degree. But let's look at the silver lining in the latest Trustees Report.
First, previous estimates had Social Security's trust funds running dry in 2034. This year's report pushes that depletion date back a year, which gives current retirees who are heavily dependent on Social Security more time to adjust their spending and try to build savings to make up for future cuts.
Second, this year's Trustees Report projects that come 2035, Social Security will still be able to keep up with 83% of scheduled benefits. Clearly, that's not as good as 100%, but it's worth noting that previous estimates have called for benefit cuts of 20% or more. A 17% reduction sounds much better in that context.