Moneywise and Yahoo Finance LLC may earn commission or revenue through links in the content below. The future of America's social safety net is hanging in limbo as the underlying trust fund reserves for Social Security benefits will be depleted in just six years. And not only is the U.S. government not offering solutions for the funding crisis, it's actually making the problem worse — even if there's money on the table for retirees as a result.
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Taxing Social Security benefits is an important part of maintaining the already beleaguered funds that knit together America's penultimate safety net. With fewer contributions, less money goes into key retirement tools such as the Old-Age and Survivor Insurance trust fund (OASI). As a result, future payouts for retirees will be lower unless the U.S. acts, and fast.
The shrinking window of opportunity for a policy fix makes a historic reset more likely. And the fallout from a potential overhaul won't just stop at retirees, but could impact all workers. This includes those who are in their 20s and decades away from filing their benefits claim.
Here's what you need to know about this upcoming deadline and how you can prepare yourself. A potential insolvency of the Social Security's underlying trust would mean an immediate benefit cut for all beneficiaries, according to the CRFB (2). In aggregate, the system faces a 24% benefit cut starting in 2032 — mostly tied to the exhaustion of the OASI trust.
For a typical dual-income household that's a $18,100 reduction in annual benefits. The cut could be even deeper for high-income households, who face a $24,000 annual reduction on average. Low-income couples would see a $11,000 reduction, which is nominally lower but likely to be a more meaningful chunk of a retired couple's annual budget.
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