Social Security benefits would not drop to $0, but they would be cut by 23 percent unless Congress acts
This post has been republished from Professor Patricia McCoy’s Substack. Her new book, “Sharing Risk: The Path to Economic Well-Being for All,” is available from The University of California Press.
In 2033, the Old-Age and Survivors Insurance Trust Fund will run out of money to pay old-age Social Security benefits. At that point, tax revenues will still be enough to pay 77 percent of monthly checks. But there will be a substantial benefits cut unless Congress takes action. If and when Congress sees fit to act, it will have to choose between higher payroll taxes on the top 6 percent or reforms that make lower-income retirees substantially worse off.
Last week, I got calls from friends who were worried about their Social Security benefits after a new, official report came out announcing that the Old-Age and Survivors Insurance Trust Fund is projected to run dry in 2033. In this column, I discuss what this means for current and future retirees.
The question at the top of my friends’ minds was whether their Social Security checks would drop to $0 when 2033 rolls around. Fortunately, the answer is “no.” They will continue to receive some level of Social Security benefits. But Social Security will have to cut monthly old-age benefits by 23 percent starting in 2034 unless Congress takes action. For the average old-age benefit of $2,002 a month today, that check would fall to $1,541—a $461 cut—absent a congressional fix (and without adjusting for inflation).
Why Social Security Checks Would Be Reduced, But Not Eliminated
So, if the trust fund runs out of money, why won’t Social Security benefits drop to $0? The answer has to do with the fact that Social Security benefits have four sources of funding. The first source (and the largest one) comes from Social Security payroll taxes that we pay on our earned wages. On our paystubs, this deduction is labeled “OASDI” or Old-Age, Survivors and Disability Insurance. In 2025, employers and workers each pay OASDI taxes of 6.2 percent on earnings of up to $176,100 a year. Self-employed workers pay 12.4 percent.
The second source consists of federal income taxes that some retirees pay on a portion of their Social Security benefits. (Interestingly, the President’s promise to eliminate federal income taxes on Social Security payments did not make it into the budget reconciliation bill now pending in Congress). Together with the payroll taxes, these tax revenues cover benefits as they come due.
When these tax revenues exceed the benefits paid, as they did through 2009, the excess taxes are deposited into the trust fund, where they accumulate. These deposits into the trust fund form the third source of funding for monthly Social Security checks. Finally, interest on the money in the trust fund provides the last funding source.
Starting in 2010, tax revenues no longer covered the full old-age benefits due every year. Ever since, the federal government has had to tap the trust fund to pay for the remaining benefits promised. The trust fund balance has been dwindling as a result, and this is what is projected to run out in 2033.
At that point, the trust fund and its interest earnings will dry up as funding sources. But payroll taxes and federal income taxes on Social Security will still be available to cover monthly benefits checks. The problem is, come 2033, those tax revenues will only cover 77 percent of promised old-age benefits. So, a big cut will be necessary starting in 2034 unless Congress stirs itself into action.
Why a 23 Percent Benefits Cut Would Severely Harm Millions of Retirees
Instinctively, pretty much everyone is worried about a cut to their old-age benefits. That is true for retirees and workers alike. It might be less of a big deal for people who have other sources of money to finance their retirements. But large numbers of workers have scarcely any savings or pensions when they retire, as I discuss in my new book Sharing Risk: The Path to Economic Well-Being for All. Many of them are in too poor health to continue to work past age 62.
The problem is that Social Security was never designed to serve as retirees’ sole source of support. As a result, old-age benefits only replaced 38.4 percent of the average career earnings of workers with medium earnings who retired at age 65 last year. Financial planners often advise people to have enough retirement income to replace at least 70 percent of their wages before retirement. And low-income workers need to replace 96 percent, according to Vanguard Research. Given this gap, most observers agree that Social Security benefits are too low to support the average standard of living that retirees experienced while they were still working.
In the United States, official policy expects people to have three pots of retirement income: Social Security, workplace retirement plans, and personal savings. Unfortunately, only one out of fourteen older adults had income from all three sources, according to a recent study. In reality, this so-called “three-legged stool” and the financial security it contemplates are a pipe dream for millions of older people.
Only one of the stool’s three legs—Social Security—is truly universal. Almost 97 percent of the U.S. population age sixty and above receives or will receive Social Security. In May 2025, this included 56 million people age 65 and older on old-age benefits. Consequently, most retirees count on Social Security income in old age.
Workplace pensions are noticeably less prevalent among lower-paid workers. According to one report, only around 45 percent of older adults had retirement income from a traditional pension or a 401k or similar plan. These people are overwhelmingly middle- or upper-income. Over 40 million American workers lack workplace retirement benefits of either type because their employers do not offer pension plans.
Personal savings are the third leg of the stool, but they are scarce to non-existent for millions of older adults. According to a U.S. Census Bureau report, practically half—49 percent—of people ages 55 to 66 had zero personal retirement savings. Based on these troubling statistics, Vanguard Research concluded that everyone except earners in the top 5 percent is at risk of falling short of spending needs in retirement. The same Vanguard report reported that laborers in the bottom half have so little income left over after paying for the necessities of life that the most they can save is 4 percent of their spending needs in retirement. That is a terrifying prospect.
As a result, between 40 and 50 percent of recipients age 65 and up rely on Social Security for at least half of their income. Of those 20-some million people, up to half depends on Social Security for at least 90 percent of their income.
Obviously, the prospect of a 23 percent benefits cut is unnerving for everyone. But retirees who are heavily dependent on Social Security for their income are at particular risk from benefits cuts, especially because their benefits are usually low to begin with. (Recall that the average monthly check is just $2,002, which is barely enough to get by). Those retirees will face severe financial hardship if Congress sits on its hands and forces their monthly benefits to drop starting in 2034. For Social Security recipients born in the 1980s, cuts that deep would plunge nearly 30 percent of them into poverty.
What Congress Could Do
As 2033 draws near, Congress will face immense political pressure to fix Social Security, judging from the number of voters who are counting on those benefits in old age. To reiterate, 56 million people age 65 and older already receive Social Security old-age benefits. Another 163 million people are employed in the U.S. civilian labor force, and most of them will qualify for those benefits upon retirement. That adds up to 200-plus million people, most of whom paid Social Security payroll taxes and believe they are entitled to the Social Security benefits they were promised.
No wonder, then, that Social Security is considered a political third rail that is not to be touched. President Trump promised not to scale back Social Security benefits. Meanwhile, most observers assume that Congress, after waiting until the last minute, will vote to restore the Social Security system to solvency.
Making Social Security solvent means ensuring that tax collections are enough to pay for the benefits due each year. To accomplish that, either Social Security payroll taxes must rise, benefits must drop, or Congress must institute a combination of both.
There are all sorts of ways to tweak the Social Security system to restore it to solvency. While space does not allow discussing them all, there are good and bad ways to go about Social Security reform. In the remainder of this column, I will discuss an example of each.
One of the most powerful methods to return Social Security to the black is to charge Social Security payroll taxes on a bigger income base. Earlier, I mentioned that Uncle Sam only charges payroll taxes on the first $176,100 of an employee’s income a year (something called the “taxable maximum”). Well-paid workers who make more stop paying those payroll taxes as soon as their earnings exceed $176,100 every year. Charging payroll taxes on all earnings, without increasing affluent retirees’ old-age benefits, would cut the system’s deficit by up to 73 percent. That would go a long way to closing the Social Security deficit. What is more, this change would be relatively painless because it would only affect the top 6 percent of earners, who presumably are in a position to afford it. Meanwhile, this approach would shield lower- and middle-income workers from costly payroll tax increases.
Less attractive are proposals to push senior citizens to work longer. One way to do that would be to delay the earliest age for collecting old-age benefits past age 62. Another way would be to raise the full retirement age (which is the age when older adults can claim full old-age benefits). Either approach would be cruel to lower-income workers, who are more likely than affluent beneficiaries to be too sick by their early sixties to keep on working. In addition, delaying the earliest eligibility age would exacerbate the fact that the highest earners collect at least three times more in total lifetime Social Security benefits than the lowest earners. Raising the full retirement age, meanwhile, would inflict a benefits cut in disguise.
In short, the impending Social Security crisis is serious and real. While it will not cause anyone’s old-age benefits to zero out, it will result in a 23 percent benefits cut by 2034 if Congress fails to shore up the Social Security system. As the day of reckoning approaches, Congress will probably act, but how it chooses to fix the system will matter enormously if lower-income retirees—who number in the tens of millions—are to avoid financial hardship.
This post has been republished from Professor Patricia McCoy’s Substack. Her new book, “Sharing Risk: The Path to Economic Well-Being for All,” is available from The University of California Press.
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