Your Social Security check is on track for an automatic 22% cut in 2032 — what it means for your budget

That means future retirees could see a 22% cut in their benefits unless Congress intervenes with a solution — and the clock is ticking.

Why is the trust fund running out of money?

A big part of the issue is the way Social Security is set up. As a worker, you pay a 6.2% payroll tax on your earnings (up to $184,500 in 2026) to fund Social Security. Employers can match this up to 6.2%. But this isn’t a retirement savings program, nor is it a type of pension.

“Nor are benefits based on or calculated to match a worker’s payroll tax contributions,” according to an analysis from the Committee for a Responsible Federal Budget (CFRB). “Rather, Social Security is a pay-as-you-go social insurance program where current workers’ payroll taxes finance the benefits of current retirees.”

In its analysis, the nonpartisan budget watchdog found that “Scheduled benefits are projected to be about 133% of taxes for beneficiaries retiring this decade, on a present value basis. Benefits will be about 265% as large as just the worker share of payroll taxes on a present value basis.”

However, that’s the average return — it varies widely, since benefits are based on one’s lifetime earnings history and a progressive wage-indexing formula. But, to put it in perspective, the CFRB’s calculations show that in 2027, a median-wage retiree can expect about $730,000 in benefits, “compared to less than $200,000 paid in taxes by them and their employer.”

“In other words, a typical retiree’s scheduled benefits will total 3.7 times taxes paid in, with benefits exceeding taxes after just six years of benefits,” according to the CFRB. And those benefits exceed the worker’s own contributions (when employer matches aren’t accounted for) after just three years.

Why younger generations could pay the price

While the math seems to be a little wonky, it’s worked out because Gen X, millennials and Gen Z are contributing to the program through their payroll taxes while expecting that they’ll receive the same benefits. But when it comes time for them to retire, that math likely won’t be to their benefit.

While the program is paying out 33% more in benefits than it collects in taxes, it’s also going to cost 35% more to run the program over the next 75 years, according to the CFRB.

Nowadays, there are fewer workers supporting a larger population of retirees — and those retirees are also living longer. Back in the early 1950s, there were about 16 workers for every retiree receiving benefits. As of 2022, there were about 2.8 workers for every retiree — and that number is projected to keep falling.

Furthermore, the average life expectancy in 1950 was around 68 (so, if you retired at 65, you might only have a few years to collect your retirement benefit). But these days, the average life expectancy of an American sits around 79.

But many Americans expect to live much longer, which means some could enjoy a retirement that lasts three decades or more. One survey by Western & Southern Financial Group found that, in general, Americans expect to live until 85, while 35% of respondents expect to live to 90 or beyond.

Yet, the same survey finds that their savings are projected to run out by age 79, and 82% of respondents haven’t factored inflation or rising healthcare costs into their retirement plans.

How you can protect your retirement income

With this in mind, many retirees will be increasingly reliant on Social Security — a program that’s in dire need of an overhaul. If nothing changes, more than 60 million retirees could see their monthly check slashed by an average of $500 starting in 2032.

This would differ by state, with cuts ranging from $459 to $556. Retirees in Connecticut, New Jersey and New Hampshire would see the largest cuts.

And while you might be hoping that Congress comes up with a solution before 2032, hope is not a strategy. One strategy that could help is to wait longer to claim your Social Security retirement benefit. If you claim at age 62 — the earliest you can start collecting your benefits — then you’re locking in a permanent 30% reduction.

If you wait until your full retirement age (FRA) — between ages 66 and 67, depending on your year of birth — you’ll receive your full benefit. And if you wait past your FRA, you’ll earn delayed retirement credits of 8% per year up until age 70.

So, if you were planning to claim your benefit early, waiting until your FRA or beyond could make up for any cuts to the program. That, of course, assumes you have enough money to cover your expenses in the meantime, whether you’re still working or have other sources of retirement income.