{"id":9826,"date":"2023-06-10T14:01:59","date_gmt":"2023-06-10T18:01:59","guid":{"rendered":"https:\/\/kerryhannon.com\/?p=9826"},"modified":"2023-06-10T14:05:59","modified_gmt":"2023-06-10T18:05:59","slug":"if-social-securitys-surplus-ran-out","status":"publish","type":"post","link":"https:\/\/kerryhannon.com\/?p=9826","title":{"rendered":"If Social Security\u2019s surplus ran out…"},"content":{"rendered":"
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
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?<\/span><\/div>\n
\n
\n

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.<\/p>\n

\u201cSo if there aren\u2019t sufficient resources in the trust funds to support benefit payments, the payments don\u2019t go out,\u201d\u00a0Charles Blahous<\/a>, an economist and senior research strategist at the Mercatus Center at George Mason University, told Yahoo Finance.<\/p>\n

Read on Yahoo Finance<\/a><\/p>\n

\u201cIn effect, it\u2019s an across-the-board benefit cut, but it\u2019s 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\u2019s in effect a 25% cut.\u201d<\/p>\n

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.<\/p>\n

‘Every beneficiary faces a virtually immediate benefit cut’<\/strong><\/h2>\n

The recent\u00a0annual report\u00a0<\/a>for the Old-Age and Survivors Insurance (OASI) Trust Fund, which pays retirement and survivor benefits, showed Social Security’s\u00a0reserves\u00a0<\/a>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.<\/p>\n

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.<\/p>\n

Still, the majority of current retirees aren\u2019t worried, even though two-thirds said those benefits are a major source of their income in retirement.<\/p>\n

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\u00a0survey\u00a0<\/a>by the Employee Benefit Research Institute (EBRI) and Greenwald Research that polled 1,320 workers and 1,217 retirees online in January.<\/p>\n

That\u2019s not a guarantee, as of yet.<\/p>\n

\u201cIt\u2019s vital for American workers to understand that if the Social Security trust fund runs out\u2014which it will, unless Congress acts, in 2033\u2014every beneficiary will receive a benefit cut,\u201d Emerson Sprick, senior economic analyst at the\u00a0Bipartisan Policy Center<\/a>, told Yahoo Finance.<\/p>\n

\u201cSome 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,\u201d Sprick said.<\/p>\n

That benefit cut will grow over the following decades, topping out at over 30% by 2080, he added.<\/p>\n

‘Double the rate of poverty among the elderly’<\/span><\/h1>\n

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.<\/p>\n

\u201cIn fact, [that] could make your financial situation far worse,\u201d he added. \u201cThe earlier you\u00a0claim Social Security benefits<\/a>, 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.\u201d<\/p>\n

\u201cIf the cut in Social Security benefits under current law goes into effect, it will double the rate of poverty among the elderly,\u201d Sen. Bill Cassidy (R-LA) warned during a recent online\u00a0presentation\u00a0<\/a>by The Bipartisan Policy Center.<\/p>\n

Prepare for the ‘what if’<\/strong><\/h2>\n

Eric Bailey, a certified financial planner at\u00a0Bailey Wealth Advisors,<\/a>\u00a0has been shepherding retirement planning for clients along a path that figures on smaller Social Security checks.<\/p>\n

But most retirees don\u2019t 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.<\/p>\n

\u201cThe 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,\u201d Bailey told Yahoo Finance.<\/p>\n

\u201cA 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.\u201d<\/p>\n

\n
\n
\n
\n
\n
\n