Many retirees who rely on a fixed income keep to a tight monthly budget. So what would happen if one of their most reliable monthly paychecks suddenly came in every six weeks instead?

That is what retirees could face in 10 years if the surplus for Social Security is allowed to run out and the program can only pay out 77% of benefits to seniors. By law, benefits can only be paid from resources in the trust funds.

“So if there aren’t sufficient resources in the trust funds to support benefit payments, the payments don’t go out,” Charles Blahous, an economist and senior research strategist at the Mercatus Center at George Mason University, told Yahoo Finance.

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“In effect, it’s an across-the-board benefit cut, but it’s not effectuated by sending out smaller checks at the same frequency as before, but by sending out same-sized checks with reduced frequency. If you only got nine payments in the course of the year rather than the 12 you had been getting, that’s in effect a 25% cut.”

For current retirees who largely expect benefits to remain how they are today, the sudden decline in monthly checks could upend their retirement budgets, a scenario that many have not planned for.

‘Every beneficiary faces a virtually immediate benefit cut’

The recent annual report for the Old-Age and Survivors Insurance (OASI) Trust Fund, which pays retirement and survivor benefits, showed Social Security’s reserves are projected to run out in 2033, a year earlier than what was stated in the 2022 report, reflecting a 3% reduction in labor productivity and gross domestic product.

At that point, payroll taxes, income taxes on Social Security benefits, and interest earned on the government bonds held by the trust funds will only cover 77% of full benefits.

Still, the majority of current retirees aren’t worried, even though two-thirds said those benefits are a major source of their income in retirement.

Seven in 10 retirees feel at least somewhat confident that Social Security benefits will continue to be of at least equal value to the benefits provided today, according to a survey by the Employee Benefit Research Institute (EBRI) and Greenwald Research that polled 1,320 workers and 1,217 retirees online in January.

That’s not a guarantee, as of yet.

“It’s vital for American workers to understand that if the Social Security trust fund runs out—which it will, unless Congress acts, in 2033—every beneficiary will receive a benefit cut,” Emerson Sprick, senior economic analyst at the Bipartisan Policy Center, told Yahoo Finance.

“Some questions about the implementation of the benefit cuts remain unanswered, but regardless of the exact implementation strategy, the outcome will be that every beneficiary faces a virtually immediate benefit cut of 23% in 2033,” Sprick said.

That benefit cut will grow over the following decades, topping out at over 30% by 2080, he added.

‘Double the rate of poverty among the elderly’

The math is even worse for those who claimed benefits early, Sprick noted, a move many have made or are considering because of confusion over how the Social Security cuts would be implemented.

“In fact, [that] could make your financial situation far worse,” he added. “The earlier you claim Social Security benefits, the lower your monthly benefit will be for life. If you claim early and lock in a low benefit amount then the trust fund runs dry and your benefit gets cut by an additional 23%, you could end up in a pretty dire financial situation.”

“If the cut in Social Security benefits under current law goes into effect, it will double the rate of poverty among the elderly,” Sen. Bill Cassidy (R-LA) warned during a recent online presentation by The Bipartisan Policy Center.

Prepare for the ‘what if’

Eric Bailey, a certified financial planner at Bailey Wealth Advisors, has been shepherding retirement planning for clients along a path that figures on smaller Social Security checks.

But most retirees don’t have the benefit of a financial planner to help them navigate that uncertain future. Only 39% of retirees currently work with an advisor, according to the EBRI study.

“The possibility of Social Security being cut, or eliminated, will significantly impact the plans of both those that are recently retired and those that will retire in the next 10 years,” Bailey told Yahoo Finance.

“A large percentage of both groups have based the foundation of their planning on Social Security being available. Over the past decade or so, we have begun modeling contingency retirement outcomes assuming no Social Security and higher inflation to prepare clients for the what if.”

Kerry is a Senior Reporter and Columnist at Yahoo Finance. Follow her on Twitter @kerryhannon.

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