Social Security Trustees Project 22% Benefit Cut in 2032. This Change Would Cut Benefits by Only 17% Instead

There are millions of older Americans today who rely on Social Security for retirement income. And without those benefits, many would be unable to afford basic living expenses.

Unfortunately, Social Security is facing a major financial crisis that could come to a head in just a few years. In fact, benefit cuts are something all retirees might need to brace for.

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One potential solution could reduce the extent to which Social Security has to cut benefits. But it's not guaranteed to happen.

Why Social Security faces cuts -- and how bad things could get

The reason Social Security faces benefit cuts boils down to a shrinking workforce. The program's main source of revenue is payroll taxes. But as older workers retire and a smaller share of replacement workers enter the labor force, Social Security will be under strain. The program is not expected to have sufficient incoming tax revenue to keep up with scheduled benefits once there's no trust fund to tap.

The Social Security Trustees, in their most recent report, projected that the program's Old-Age and Survivors Insurance (OASI) Trust Fund would run out of money by the fourth quarter of 2032. Once that happens, Social Security may face a 22% benefit cut.

Cuts could be reduced following one key move

The OASI Trust Fund is where Social Security's retirement benefits are paid from. But Social Security has another trust fund called the Disability Insurance (DI) Trust Fund, which pays disability benefits.

If the two trust funds were to be combined, Social Security would be able to pay retirement benefits in full for almost an extra two years. And from there, those benefits would only face a 17% cut.

The problem, though, is that Social Security can't simply combine the two funds. Congress would need to vote for that change.

Also, combining the OASI and DI funds doesn't prevent benefit cuts. It simply reduces them while slightly shifting the timeline.

It also puts the DI Trust Fund at risk of depletion much sooner than it would otherwise run out. The current projection by the Trustees indicates the DI Trust Fund could last at least through 2099 if left alone.

Of course, the main reason Congress might hesitate to combine the two Social Security trust funds is that a 17% benefit cut would still be catastrophic to millions of older Americans, not to mention future retirees. There's a good chance that if lawmakers make a change, they'll focus on one that can prevent Social Security cuts entirely.

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