Throughout the country, almost all retirees are experiencing the impact of Social Security benefits being discreetly slashed. Federal forecasts suggest that starting next January, recipients from 46 states will see a reduction in the monthly benefits check. While cost of living adjustments (COLA) in the past have balanced with the inflation rates, the SSA has to reduce payments due to recent reserve shortfalls in the trust fund. For retirees living on fixed incomes, a modest reduction in benefits can lead to difficult decisions, like prioritizing groceries over vital medications.
A Patchwork of State Impacts
While uniform across the board, the percentage reduction in benefits translates differently on a dollar value basis. States like California and New York, with higher average monthly benefits, stand to lose the most per household. Retirees in other states where average benefits were lower won’t lose as much on a dollar value, but will still face significant hardship. Below is a snapshot of average monthly loss by state:
Underlying Financial Strain
Social Security trust funds are facing mounting strain of longer life expectancies, economic shifts, and shifts in demographics. With a large portion of the baby boom generation retiring, coupled with a decline in the ratio of workers to retirees, projected benefits are likely to outstrip tax revenue. Resulting in the SSA’s announcement that without a legislative solution, it will be forced to activate the pay-as-you-go system—resulting in across-the-board reductions.
Potential for Policy Response
Suggestions to remedy the issue have ranged from increasing the payroll tax cap to adjusting the COLA calculation. Unfortunately, the political stalemate means retirees are unlikely to see assistance in the near term. Advocacy coalitions are urging Congress to come to a bipartisan agreement, asserting that even short-term reductions can have devastating impacts on local economies that are dependent on consumer spending from retirees.
No region is spared; 46 out of 50 states are projected to receive cuts to Social Security as the trust fund shortfall forces a recalibration of benefits. While the reduction is relatively low in percent terms, for low-income seniors and every dollar spent, the calculation is critical. There is no guaranteed remedy on the horizon, so retirees are left with no option but to prepare now, adjust their finances, and advocate for policy changes aimed at securing their benefits.
