Key Points
-
If Congress doesn’t act to strengthen Social Security, big cuts are ahead.
-
There are ways to fix the problem.
-
Ideally, we all should be building nest eggs to help support us in retirement along with Social Security.
-
Many people, especially retirees, pay a lot of attention to Social Security’s annual cost-of-living adjustments (COLAs). That makes sense, because many of those in retirement need every dollar of benefits, and any increase makes life easier. The upcoming increase for 2027 is 3.6%.
There’s a much bigger issue for people to focus on, though: a big potential cut in benefits — which is likely to be bigger in some states than others.
Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a “Double Down” signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same “Total Conviction” signal is flashing for a company 1/100th the size of Nvidia. Continue »
Why a big cut is looming
Here’s the situation: Social Security works by collecting taxes from workers and using that income to pay retirees. For many decades, this resulted in a surplus, as Social Security collected more than it paid out.
But times have changed. People are living longer, on average, and many are retiring earlier. So Social Security is paying out more than it’s collecting, and that’s draining the surplus.
You can see how the ratio of workers to Social Security beneficiaries has shrunk over time in the table below:
|
Year
|
Ratio of Covered Workers to Beneficiaries
|
|
1945
|
41.9
|
|
1955
|
8.6
|
|
1975
|
3.2
|
|
1985
|
3.3
|
|
1995
|
3.3
|
|
2005
|
3.3
|
|
2015
|
2.8
|
|
2020
|
2.7
|
|
2025
|
2.6
|
|
2026
|
2.6
|
|
2035*
|
2.3
|
Data source: Social Security Administration.
*projected, in the 2026 Social Security Trustees report
If nothing is done to strengthen it, Social Security’s trust funds’ surplus will run out within a few years, which will result in benefits shrinking to around 78% of the amount due to beneficiaries. That’s a hefty 22% cut. The percentage of the expected cut has fluctuated over the years, and by the time it happens — if it happens — it might be a bit larger or smaller. In the 2025 report from the Trustees of the Social Security and Medicare trust funds, the expected cut was 24%.
A 22% cut will turn a $2,500 monthly benefit check into a $1,950 one, smaller by $550 — each month. That’s the bad news. The good news is that there are multiple ways to save Social Security, should Congress decide to do so — and the newly elected Democratic-majority Congress may well take action.
Which states would get the biggest cuts?
The Committee for a Responsible Federal Budget (CRFB) used projections from the 2025 Trustees of the Social Security and Medicare trust funds report and modeled a 24% cut across all 50 states. It found that the largest cuts would affect retirees in the following 10 states:
|
State
|
Percentage of residents affected
|
Total number of people affected
|
Average retiree’s cut in monthly benefits
|
|
Connecticut
|
17.9%
|
657,408
|
$556
|
|
New Jersey
|
16.3%
|
1,551,507
|
$554
|
|
New Hampshire
|
21%
|
295,195
|
$553
|
|
Delaware
|
21.1%
|
221,860
|
$549
|
|
Maryland
|
15.6%
|
974,586
|
$541
|
|
Washington
|
16.7%
|
1,331,767
|
$531
|
|
Minnesota
|
17.7%
|
1,025,961
|
$530
|
|
Massachusetts
|
16.4%
|
1,171,079
|
$527
|
|
Michigan
|
19.8%
|
2,009,446
|
$523
|
|
Utah
|
12.1%
|
423,029
|
$523
|
Data source: Committee for a Responsible Federal Budget.
Those average cuts vary because average benefit checks vary by state, with retirees in some states having lower incomes than those in other states. So while a smaller expected cut might seem good, it’s only because the benefit was smaller to begin with.
The CRFB ended its report saying: “With insolvency projected to occur during the terms of the next elected Senators and President, candidates and policymakers must decide how they will secure a program vital to millions of Americans. That starts with putting forward a plan because if Social Security becomes insolvent – no state would be spared.“
The big picture
This may be quite alarming to you, but keep in mind that for many retirees, Social Security benefits will only provide some retirement income. Most of us should be saving and investing to build a nest egg that can help support us in the future, along with Social Security benefits. After all, the average monthly Social Security retirement benefit was only $2,089 as of September, amounting to around $25,000 annually.
So be sure to come up with a solid retirement plan, detailing how much income you’ll need and how you’ll achieve it. You may need to save and invest a lot more. You may want to delay retiring for a few years, too.
It can also help to let your representatives in Washington, D.C. know that you don’t want to see any Social Security cuts.
The $23,760 Social Security bonus most retirees completely overlook
If you’re like most Americans, you’re a few years (or more) behind on your retirement savings. But a handful of little-known “Social Security secrets” could help ensure a boost in your retirement income.
One easy trick could pay you as much as $23,760 more… each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we’re all after. Join Stock Advisor to learn more about these strategies.
View the “Social Security secrets” »
The Motley Fool has a disclosure policy.
