NEW YORK (MainStreet) — A large block of future retirees can expect to see their Social Security benefits dwindle by 19%, thanks to a 29-year-old piece of legislation that curtailed government retirement benefits. If the feds don't find other ways to shore up the pension system, it means bad news for millions of Americans under 50.
There’s no doubt Social Security is in big trouble financially. According to the Congressional Budget Office, Social Security coffers are expected to operate with huge deficits by 2037, and this year alone the U.S. government will collect $45 billion less in taxes than it shells out. By 2016, Social Security is expected to fall permanently into deficit mode, so it’s no surprise future beneficiaries may see their Social Security cut.
A new study by the National Academy of Social Insurance estimates that some cuts have already been locked in, thanks to changes in Social Security’s payment structure that date back to the 1980s. Americans born after 1960 have been staring down the barrel of a 19% benefits cut, and that could just be the beginning. If Congress doesn’t pare benefits across the board, the study argues, future Social Security beneficiaries could be in even bigger trouble.
“Social Security benefits are already being cut more than many people realize,” says Virginia Reno, NASI’s vice president for income security. “Cutting benefits further is not necessary to preserve Social Security for future generations. Other alternatives merit consideration by policymakers.”
That’s what Congress did in 1983, and it must take similar action again, NASI says. Back then, Congress took steps to ensure the solvency of the nation’s most widely used retirement savings program, raising the full-benefit retirement age from 65 to 67, a change that results in a 13.3% reduction in benefits, taxing part of benefit income, which results in a 5.1% benefit cut, and delaying the cost-of-living adjustment by six months, resulting in a permanent 1.4% cut.
Taken together, those cuts led to a serious reduction in benefits for millions of Americans, especially those under 50.
“The 13.3% cut affects new retirees born in 1960 and later; they will begin reaching age 65 in 2025 and age 90 in 2050. By then, almost all of the elderly will have experienced the full 19% reduction in Social Security,” the report says.
But that was 1983, when Social Security benefits cuts could be augmented by contribution increases by a more stable work force over the next 28 years. Going forward, NASI says, contribution increases are off the table.
“The 1983 changes are often described as a balanced plan of benefits cuts and contribution increases,” the report noted. “But that is not the case for the long run (today): The benefit cuts taking place in this century were not balanced by any new contributions.”
NASI has numbers backing that up: Between last year and 2085, Social Security beneficiaries, as a percentage of the nation’s population, will rise from 17% to 25%. But Social Security payments on average will rise only 5% or so during the same period, and that’s only if Congress acts to stabilize government payouts to retirees. If not, the future could be bleak.
Data show that two-thirds of U.S. retirees count on Social Security for at least half their income, but with less money to go around, millions of future retirees may have to make do with less.
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