US social security payments: Americans may see benefit cut by over $500/month in next six years — What we know

The Committee for a Responsible Federal Budget has released a report mapping the "Impact of “Social Security's Insolvency”, noting that average monthly benefit cuts could surpass $500 per month in 29 states. Some 63 million Americans, including retirees, spouses, and dependents in the United States benefit from the Social Security’s retirement program.

“… For the last 16 years, the cost of Social Security’s retirement program has exceeded its cash income, forcing it to pay benefits in part by using its trust fund reserves. The Social Security Trustees now project that the retirement trust fund will be exhausted in 2032, less than seven years from today,” the report warned.

Incorporated on 10 June 1981, the Committee for a Responsible Federal Budget is a non-partisan, non-profit organisation which publishes on issues with significant fiscal policy impact.

Why could benefits be cut? Who will be impacted?

The report noted that by law, the US social security program cannot pay out more in benefits than it receives in revenue, and all retirees are “projected to be subject to an immediate 24% benefit cut upon trust fund exhaustion”.

• In real-world terms, a 24% cut would mean reduction in payout by over $500 per month in as many as 29 of the 51 US states.
• Beneficiaries in Connecticut, Delaware, Maryland, Massachusetts, Michigan, Minnesota, New Hampshire, New Jersey, Utah, and Washington could see the biggest impact.

• Over 15% of citizens would be directly impacted in 47 states, with the largest share of the population impacted in Delaware, Maine, Michigan, Montana, New Hampshire, Pennsylvania, South Carolina, Vermont, West Virginia, and Wisconsin.
• Total benefit cuts would exceed 1% of GDP in 40 states, with the largest economic impact in Alabama, Arkansas, Idaho, Maine, Michigan, Mississippi, Montana, South Carolina, Vermont, and West Virginia.

“No state would be spared from the potentially devastating effects of insolvency. With less than seven years until Social Security is projected to be insolvent, policymakers need to enact changes to the program as quickly as possible to protect against these scenarios,” the report added.

Social security benefit cuts: How much could Americans lose?

If Social Security becomes insolvent as estimated by 2032, retirement benefits would need to be cut by around 24%. “We estimate an across-the-board monthly cut would range from $459-556 across the 50 states and the District of Columbia,” the report added.

Notably, monthly social security cheques usually range from $1,500 to $4,000 based on lifetime earnings. Thus, over $500 per month cut across the board irrespective of payout amount could especially severely impact spending power of beneficiaries in the lower ranges.

• Nationally, the average monthly cut would total $500, which is more than what the average retired household spends on groceries each month.
• In 29 states, the cut would exceed $500 with retirees in Connecticut, Delaware, Maryland, New Hampshire, and New Jersey facing the largest monthly reductions.

Key highlights: Potential impact of social security cuts

Share of population impacted by state: One-in-five Americans, i.e. 63 million will be impacted if Social Security’s retirement program faced a 24% cut today. This includes 54 million retired workers and 9 million survivors and dependents.

Between 10% and 23% of each state’s population would be affected by the cut, with the largest share facing benefit cuts in Maine, West Virginia, Vermont, Delaware, Montana, and New Hampshire.

Total benefits lost by US: At the national level, a 24% reduction in Social Security benefits today would amount to $345 billion this year, or 1.1% of GDP – with the state impact ranging from 0.2% to 1.9% of GDP.

Total benefits lost by the states: In 40 states, the cuts would exceed 1% of GDP with West Virginia, Mississippi, and Vermont facing the steepest losses, followed by South Carolina and Maine. States that would be the most impacted are those that have older populations and lower per-person incomes.

Likely benefits loss in dollars: In nominal dollars, the size of the total dollar cut varies largely based on the size of the state. California and Florida, respectively, would see losses totaling $33 billion and $27 billion, followed by Texas ($24 billion), New York ($20 billion), and Pennsylvania ($16 billion).

“Restoring solvency to Social Security will require navigating difficult tradeoffs. Policymakers have many options to restore solvency while also strengthening retirement security, promoting economic growth, and better targeting taxes and benefits. However, they must act quickly to prevent deep, abrupt benefit cuts that would affect all beneficiaries, regardless of age or need,” the report concluded.

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