What This Means for Workers and Retirees
According to the 4% rule, retirees can withdraw 4% of their retirement savings annually while preserving their nest egg throughout retirement. PensionBee modeled how much more different age groups would need to save to offset cuts to an illustrative $2,000 monthly benefit, assuming retirement at 67, 4% annual withdrawals, and 5% annual investment returns (not adjusted for inflation).
Current Social Security projections show two potential timelines:
- 2033: The retirement-only trust fund (OASI) runs dry, triggering a 23% cut to retirement benefits in eight years.
- 2034: The hypothetically combined trust funds (OASDI) are depleted, triggering a 19% cut to all Social Security benefits, including disability payments.
Estimated Additional Savings Needed by Age To Offset 23% Benefit Cut in 2033
Starting Age: 55 Years
- Saving Timeline: 12 Years
- Amount Lost: $138,000
- Monthly Savings Target: $701
- Annual Savings Target: $8,416
- Total Additional Contributions: $100,992
Starting Age: 45 Years
- Saving Timeline: 22 Years
- Amount Lost: $138,000
- Monthly Savings Target: $288
- Annual Savings Target: $3,455
- Total Additional Contributions: $76,010
Starting Age: 35 Years
- Saving Timeline: 32 Years
- Amount Lost: $138,000
- Monthly Savings Target: $146
- Annual Savings Target: $1,753
- Total Additional Contributions: $56,096
Starting Age: 25 Years
- Saving Timeline: 42 Years
- Amount Lost: $138,000
- Monthly Savings Target: $81
- Annual Savings Target: $967
- Total Additional Contributions: $40,614
Estimated Additional Savings Needed by Age To Offset 19% Benefit Cut in 2034
Starting Age: 55 Years
- Saving Timeline: 12 Years
- Amount Lost: $114,000
- Monthly Savings Target: $579
- Annual Savings Target: $6,953
- Total Additional Contributions: $83,436
Starting Age: 45 Years
- Saving Timeline: 22 Years
- Amount Lost: $114,000
- Monthly Savings Target: $238
- Annual Savings Target: $2,854
- Total Additional Contributions: $62,788
Starting Age: 35 Years
- Saving Timeline: 32 Years
- Amount Lost: $114,000
- Monthly Savings Target: $121
- Annual Savings Target: $1,448
- Total Additional Contributions: $46,336
Starting Age: 25 Years
- Saving Timeline: 42 Years
- Amount Lost: $114,000
- Monthly Savings Target: $67
- Annual Savings Target: $799
- Total Additional Contributions: $33,558
With less time in the market, mid- to late-career workers will need to set aside considerably more to account for the expected benefit cuts. PensionBee's modeling reveals that in both scenarios, the oldest age group (age 55) would need to save roughly nine times as much as the youngest (age 25) to offset the same size benefit cut.
If Congress does not act before 2033, younger workers (age 25) will have over 42 years to save an additional $40,614 to offset the $138,000 lost through a 23% benefit cut. Those at age 55 will have just 12 years to save and will need an additional $100,992 to offset the same cut.
The Unequal Impact of Across-the-Board Cuts
A 19% or 23% across-the-board cut may sound fair, but it won't feel fair. While the vast majority of older Americans are eligible for Social Security benefits, cuts will disproportionately impact lower-income Americans. Social Security replaces a higher percentage of pre-retirement income for low-wage earners than high earners; an identical percentage cut will create vastly unequal impacts.
The Center on Budget and Policy Priorities estimates that Social Security prevents over 22 million Americans from living in retirement poverty, more than any other program. Cuts to the program will harm more than just older adults: the same study found that over 5.7 million children live in households supported by Social Security income.
What Policymakers Must Do Now
Delaying action risks a more disruptive solution down the line. While Americans remain divided on specific solutions, polling reveals a bipartisan consensus on the program's importance.
Recent AARP data reveals that 85% of respondents support maintaining or increasing benefits even if it means higher taxes, with backing across party lines: 75% of Republicans, 90% of Democrats, and 80% of independents prefer revenue increases over benefit cuts.
One thing is clear. The longer lawmakers delay, the more painful the eventual solution becomes for every American.
What Americans Can Do Now
No matter your age, immediate action can provide crucial protection:
- Maximize contributions, especially catch-up contributions for those over 50
- Leverage employer matches and use auto-escalation tools to gradually increase 401(k) contributions
- Consolidate scattered accounts to reduce fees and improve oversight: roll old accounts into an IRA or your current employer's plan
- Diversify investments to manage risk while growing savings
- Delay retirement to maximize replacement rates
"The accelerated insolvency timeline means Americans have even less time to prepare for what's coming,” said Romi Savova, CEO of PensionBee. “While we can't control Congressional action, we can control our response. Americans who consolidate their retirement accounts and take control of their savings today may be far better positioned to weather potential future cuts than those who wait for political solutions."
Bottom Line
Social Security isn’t a bonus. For most Americans, it’s the foundation of retirement. But that foundation is cracking, and the stakes couldn't be higher. Even before benefit cuts, the U.S. ranked in the bottom third of developed countries for public pension replacement rates. And as it stands now, Americans are looking at roughly 20% smaller benefit checks.
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