That Social Security Income Replacement Cliff Could Hurt
Social Security will keep paying retirement benefits in 2035, even if its trust fund empties out, but the cut in the amount would be huge.
That’s the assessment of Alicia Munnell, director of the Center for Retirement Research at Boston College.
Munnell, one of the top academic retirement researchers in the world, says Social Security should receive enough payroll tax revenue to pay 80% of the currently promised benefits from current income in 2035, and about 74% of the promised benefits in 2096.
But the replacement rate, or the percentage of pre-retirement earnings provided by Social Security benefits, would fall off a cliff.
Today, the typical replacement rate is 38%.
In 2035, if Congress fails to act, the replacement rate will plunge to 27%, Munnell warns.
Munnell has included that observation in a new summary of her reactions to the 2022 Social Security trustees report.
What It Means
For Munnell, the key takeaway from the trustees report is that policymakers know that Social Security is running a 75-year deficit equal to about 3.5% of taxable revenue, and that the trustees have known that for about 30 years.
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