Key Points
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All Social Security beneficiaries could face a 22% benefit cut if nothing changes.
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This could be especially devastating to states with low average incomes.
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A 22% benefit cut is unlikely, but avoiding one might bring higher taxes for workers.
Social Security beneficiaries face a possible 22% benefit cut in just six years, if the estimates in the latest Trustees’ Report prove accurate. There are few seniors who wouldn’t be devastated by a blow like this, but some would get hit much harder than others.
There are 10 states in particular whose residents would experience notable challenges as a result of such a benefit cut. Fortunately, this isn’t the most likely outcome.
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The 10 states that would get hit hardest by a 22% Social Security cut
The following 10 states would fare the worst in terms of total benefits lost as a share of gross domestic product (GDP), according to data from the Committee for a Responsible Federal Budget:
- West Virginia
- Mississippi
- Vermont
- South Carolina
- Maine
- Michigan
- Montana
- Arkansas
- Alabama
- Idaho
Many of these states have low average incomes, so a significant reduction in their Social Security checks could put many residents at risk of financial insecurity. The good news is that benefit cuts this large are unlikely. The bad news is that avoiding cuts comes with its own costs.
Why a 22% Social Security benefit cut is unlikely
This isn’t the first time that Social Security has faced a financial crisis. It had similar problems in the 1980s, and Congress intervened to keep benefits going out as scheduled. It will likely do the same thing this time around, though we could still be a few years away from a fix.
Washington has several options at its disposal, but each comes with a cost, making it difficult for members of Congress to agree on a strategy. It’s likely that at least some workers will face higher Social Security payroll taxes going forward, and there could be an across-the-board increase that would reduce workers’ take-home pay.
This could actually make some younger adults more dependent upon Social Security in retirement if it leaves them unable to save for the future on their own. However, it would spare today’s seniors from a drop in income they may not be able to accommodate.
The best thing for all workers and seniors to do right now is to budget carefully and keep an eye out for future changes to Social Security. Once we know how Washington plans to alter the program, you’ll be able to revisit your retirement plans and make any necessary adjustments to keep yourself financially secure. This might involve increasing your retirement contributions or putting off retirement for a while longer to give yourself more time to save.
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