Early Social Security Claimants Face a Compounded 53% Benefit Reduction

Retirees who claim Social Security benefits at age 62 may face a combined benefit reduction of approximately 53% if the program's trust fund is depleted. This reduction is the result of a combined 30% permanent reduction for early filing—for those with a full retirement age of 67—and a projected 23% broad benefit cut. The Congressional Budget Office projects the Old-Age and Survivors Insurance Insurance Trust Fund will be depleted by 2032, which may lead to those broad cuts. This funding gap is driven by a long-term structural deficit. The Bipartisan Policy Center reports a $25 trillion deficit over the next 75 years. The worker-to-beneficiary ratio has fallen from five-to-one in 1960 to three-to-one in to three-to-one in 2024.

Lawmakers have proposed several mechanisms to avoid these cuts. Senator Bill Cassidy proposes issuing $1.5 trillion in debt to fund stock market investments. The Committee for a Responsible Federal Budget believe that such a fund would need annual returns of 9% to 13% to work. Senator Sheldon Whitehouse's Medicare & Social Security Fair Share Act would tax incomes above $400,000 and raise the net investment tax to 5% for that group.

Other options include raising the full retirement age. The Congressional Budget Office suggests the age may rise by two months per birth year for workers born between 1964 and 1981 until it reaches 70. Alternatively, Congress could raise the payroll tax rate. An increase of 3.65 percentage points is required today, but that requirement rises to 4.27 percentage points if the payroll tax rate increase is delayed until 2034.