Social Security: A system on the brink of collapse

Social Security, an essential sustenance for millions of U.S. retirees, faces its most serious threat in generations. The retirement trust fund (the main source of backing for benefit payments) is on track for total insolvency by the end of 2032. If urgent reforms are not implemented, more than 62 million retirees will see their paychecks shrink.

According to the most recent report from the Committee for a Responsible Federal Budget (CRFB), depletion of the trust fund has been speeding up. According to the report, failure of Congress to act will result in a 24% cut in Social Security payments beginning in 2033:

What caused this crisis?

Demographic decline and political decisions are the main culprits. In 1955, there were 8.6 workers for every Social Security beneficiary. Today, that ratio has plummeted to just 2.8, representing an unsustainable burden on the working population. The growing retirement of baby boomers, together with the low birth rate, have caused the system to enter the risk zone.

Regarding the numbers, the CRFB was clear and called for action from government representatives: "Policymakers pledging not to touch Social Security are implicitly endorsing these deep benefit cuts for 62 million retirees in 2032 and beyond."

According to the report, the Big, Beautiful Bill indirectly influences this estimate, as it will end up negatively affecting trust fund finances. While the temporary standard deduction helps in the short term, the rule has caused the fund's depletion date to be pushed forward by at least a year. If its tax provisions were made permanent, the impact would be even worse, raising the benefit cut beyond 24%.

A big impact for all households

The size of the cut will depend on factors such as marital status, income level and work history. A dual-income couple with median income retiring in early 2033 could lose $18,100 annually, equivalent to $1,508 per month. A single-income couple in that same range would lose $13,600 annually.

For lower-income households, the effects remain severe: dual-income couples will face a cut of $11,000 a year, while those with a single income will lose $8,200. High-income households, who have also paid proportionately more taxes during their working lives, are not spared either: they would lose between $18,000 and $24,000 a year.

And this is just the beginning. The CRFB warns that over time, the cuts will become even more severe, possibly exceeding 30% by the end of this century if the country's fiscal course is not corrected.

The collapse is not limited to Social Security. The Medicare trust fund, which finances hospital insurance for seniors, also faces its own fiscal abyss. It is projected to become insolvent by 2033, with automatic cuts of up to 11% in payments to health care providers. This not only reduces benefits: it jeopardizes access to basic medical services for millions of seniors.

Mistrust on the rise, especially among young people

While all this is going on, a recent survey by AARP reveals what Americans think about this issue, showing clear confusion. When respondents were asked what would happen if the trust funds ran out, 36% responded that payments would be suspended. Only 34% responded that benefits would continue to be paid, albeit at a reduced amount.

"When informed that benefits would continue, nearly half of the respondents estimated that payments would be reduced by at least 50%," the survey notes.

On the other hand, confidence in the future of Social Security declined 7 percentage points from 2020 (from 43% to 36%). "Younger people are more pessimistic about the future of the system: only about a quarter of 25- to 44-year-olds expressed confidence, compared with 59% of adults aged 65 and older."

Dr. Myechia Minter-Jordan, executive director of AARP, noted that one should be confident about the system: "Social Security is one of the most successful and popular initiatives in history" and "has helped generations of people stay out of poverty and live with dignity after a lifetime of hard work."