If Congress fails to shore up Social Security’s finances, the consequences for retirees could vary dramatically depending on how much they rely on the program — and research presented at an Institute for Research on Poverty at the University of Wisconsin-Madison webinar Wednesday suggests lower-income beneficiaries could have the least ability to absorb a reduction.
The Social Security trust fund is currently projected to be depleted in 2032, at which point the program would have enough revenue to pay only a portion of scheduled benefits absent congressional action. For millions of retirees, particularly those with limited savings and other income, even a relatively modest reduction could translate directly into less money available for basic expenses.
“Lower benefits can mean lower total income,” said Anil Kumar, a professor of economics at the University of Iowa, who presented research on poverty among older Americans. “For families near the bottom, other income did not make up for the loss.”
Kumar’s research examined an earlier change in Social Security rules that allowed workers to claim benefits earlier in exchange for permanently smaller monthly checks. Although that experience is not a forecast of what would happen following a broad reduction in benefits, it provides an indication of who may have the most difficulty adjusting.
On average, Social Security income fell about 2.4% among the families studied. But the reduction was substantially larger for families receiving lower benefits: At the 25th percentile of benefits, Social Security income fell by about 5.8%. Lower-income families generally had little or no other income to offset the decline.
“The impact of these cuts differ across the income distribution,” Kumar said. “Some households can absorb a smaller check, others cannot.” He also emphasized the importance of age: “A cut that seems manageable at 65 can be much harder at 80 or 85.”
Anita Mukherjee, an associate professor of risk and insurance at the University of Wisconsin-Madison, offered another reason lower-income retirees may struggle to compensate for lost Social Security income: They may not have assets that can easily be converted into spending money.
Her research finds that retirees frequently hold onto their savings rather than steadily drawing them down. For households heavily dependent on Social Security, meanwhile, monthly benefits are not simply another component of wealth — they are a source of income that is already being used to pay for everyday expenses.
“For Social Security-reliant households, a monthly benefit change is not the same as a paper wealth change because people spend from their flows, not their stock of money,” Mukherjee said.
That makes the possibility of a benefit reduction particularly consequential for retirees who have little financial cushion. Mukherjee noted that benefit changes that are “unclear, sudden, or hard to plan around may be more difficult for people to absorb,” especially for vulnerable households.
The ripple effects could extend beyond Social Security itself. Asked whether lower benefits could increase demand for programs such as SNAP, Supplemental Security Income and Medicaid, Kumar said that some households could become newly eligible for assistance or receive more benefits.
But those programs would not necessarily make up the difference.
“Lower Social Security income could increase demand for other assistance,” Kumar said, while noting that eligibility depends on program rules, income and asset limits, and whether people apply for benefits or report their change. “These programs, I don't think they can replace the lost income.”
Kathryn Ann Edwards, a labor economist and co-founder of The Optimist Economy, similarly cautioned that changes affecting current beneficiaries could fall hardest on those already most vulnerable.
“Any benefit cuts to current beneficiaries are gonna hit the most vulnerable,” Edwards said. She pointed specifically to changes that would slow the growth of benefits through adjustments to the cost-of-living calculation, noting that housing, heat and health care are among the major expenses facing older Americans.
The panelists also cautioned against treating the potential impact of Social Security changes as a single average effect. The financial circumstances of retirees differ considerably by income, age, gender, family structure and other factors.
For policymakers considering how to address Social Security’s long-term finances, the discussion offered a simple reminder: The size of an average benefit reduction may obscure its consequences for those with the fewest alternatives.
As Kumar put it, when considering potential changes, two questions should remain central: Who relies most on Social Security, and how old are they?