Can you afford to cut your Social Security benefit by $6,090 a year? This prediction is only 9 years away from coming true.

No program has proven more vital to the financial well-being of our aging workforce than Social Security. An analysis by the Center on Budget and Policy Priorities found that 22.7 million people, including 16.5 million adults age 65 and older, were lifted above the poverty line by their Social Security payment in 2022 .

What’s more, over two decades of annual Gallup polls have shown that up to 90 percent of retirees rely on their monthly paycheck to cover some of their expenses. In other words, Social Security is a program that most retired workers and older Americans would struggle to live without.

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Although Social Security is in not in danger of going bankrupt, becoming insolvent or disappearing, the foundation of the program has shown signs of failure, which has jeopardized the current trajectory of payments.

Social Security faces a long-term funding shortfall of more than $23 trillion

Every year since the first Social Security retiree worker’s check was mailed in 1940, the Social Security Administration Board has released a report that effectively lifts the lid on the program’s current financial situation. This annual report also estimates how changes in fiscal and monetary policy, demographic changes, and other factors will affect revenue collection and benefit spending in the short term (10 years after a report is issued) and the long term (75 years after launching a report). report).

Since 1985, every trustees’ report has warned that long-term revenue collection would be insufficient to cover spending. In other words, the tea leaves have been suggesting that Social Security has been facing a 75-year funding shortfall for some time.

The Trustees’ 2024 report pegged Social Security’s funding shortfall at a whopping $23.2 trillion by 2098. The size of that shortfall has grown steadily in recent years.

But there’s a much bigger concern than what Social Security might look like in 2098.

OASI’s asset reserves could be exhausted in nine years. Year-End US Old-Age and Survivors Trust Fund Assets by YCharts.

Could you handle a $508 a month reduction in your Social Security check?

According to the trustees’ latest report, the Old Age and Survivors Insurance Trust Fund (OASI), which is responsible for distributing benefits to more than 51 million retired workers and 5.8 million survivor beneficiaries, is expected to will exhaust its asset reserves by 2033. “Asset reserves” are excess cash accumulated since the start of the program, which is invested in interest-bearing special issue government bonds.

To reiterate, the depletion of OASI’s asset reserves does not mean that it is bankrupt or insolvent. However, it would signal that the current payment schedule, including annual cost of living adjustments (COLAs), is not sustainable.

Administrators predict that steep benefit cuts of up to 21 percent could be needed by 2033 to sustain payments through 2098 without the need for further cuts.

In June 2024, the average retiree took home $1,918.28. Assuming an average annual COLA of 2.6% — we chose this specific figure because it is the average COLA over the 20-year period — the average retired worker’s benefit through 2033 would be $2,416.79 per month. A 21% reduction in OASI benefits over nine years would reduce this monthly payment by $507.53, or about $6,090 on an annual basis.

How did Social Security’s once solid foundation crumble?

Given that America’s largest retirement program has enjoyed more than three decades (1984-2017) in which its asset reserves have grown annually, many current and future beneficiaries are left wondering how it began to collapse its once impermeable foundation.

I can assure you it has absolutely nothing to do with the prominent social media myths of “stealing congressional funds” or “undocumented workers receiving benefits.” Both statements are patently false. The culprit for Social Security’s growing funding shortfall is a variety of ongoing demographic changes.

For example, Social Security relies on a relatively healthy number of legal immigrants entering the US each year. Migrants tend to be younger, meaning they will spend decades in the workforce and contribute to the program through the 12.4 percent payroll tax before one day receiving a worker’s pension benefit of their own. However, the rate of net migration to the US has declined every year since 1998, based on data from the United Nations.

Another undeniable problem is that the US fertility rate in 2023 has reached an all-time low. For a number of reasons, including postponing marriage and concerns about the US economy, fewer children are being born. Over a generation, this will result in a further reduction in the worker-beneficiary ratio.

Income inequality is also getting worse. In 2024, all earned income (wages and salaries, but not investment income) between $0.01 and $168,600 is subject to the Social Security payroll tax. Meanwhile, earned income above $168,600 is exempt from payroll tax. Over the past four decades, the percentage of earned income exempt from payroll taxes has increased significantly.

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Lawmakers realize there is a problem, but there is no simple solution

The only way major benefit cuts will be avoided is through action by our elected officials on Capitol Hill. Although lawmakers from both parties acknowledge that there are flaws in America’s main retirement program, they are approaching a solution from opposite ends of the spectrum.

While you can read both sides’ policy proposals in detail, it boils down to this:

• Most Democrats in Congress favor raising taxes on high earners and increasing benefits for low earners for life.
• Most Republicans on Capitol Hill favor raising the full retirement age to reduce program spending for future generations.

The truth is that both broad proposals would strengthen Social Security — but they also have unique flaws.

For example, raising the full retirement age would ultimately reduce lifetime benefit spending, forcing future generations of retirees to either wait longer to cash their full check or accept a larger permanent reduction in claim payments anticipated. Unfortunately, this would do nothing for the predicted depletion of OASI’s asset reserves in just nine years.

Comparatively, increasing taxation on the wealthy would generate additional revenue and likely eliminate the dose by the time the OASI’s asset reserves are exhausted, years or decades, depending on how this additional revenue was allocated. But this plan doesn’t come close to solving the $23.2 trillion long-term funding gap.

With Democratic and Republican lawmakers unable to find anything like common ground and the bipartisan cooperation needed to amend the Social Security Act in the Senate (60 votes are needed), there is simply no easy solution to this growing problem.