• The trust fund Social Security relies on to pay retirement benefits faces a looming 2033 projected depletion date.
• If no changes are made by that date, the general expectation is that an across-the-board benefit cut would be inevitable.
• Yet new research suggests the president would have room to adjust those cuts to protect those who most need benefit income.

Social Security may not be able to pay full retirement benefits as soon as 2033, based on current projections from the program's trustees.

If Congress doesn't move to fix the situation by that date, the general expectation is that millions of retirees could see a 21% across-the-board benefit cut.

The effects of that lost income could be enough to prompt a retirement crisis, since it would double the elderly poverty rate and reduce median senior household income by nearly 14%, according to new research from the American Enterprise Institute.

Yet those broad benefit cuts would not necessarily have to happen, as the worst effects of insolvency could be prevented by executive action, according to the report.

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Instead of across-the-board benefit cuts, benefits could be reallocated to avoid increases in poverty for low earners while having just a small effect on the middle class, according to Andrew Biggs, a senior fellow at the AEI, who co-wrote the report with Kristin Shapiro, counsel at BakerHostetler.

"It means big cuts on very rich people, but it avoids what you might think of as a retirement crisis, where everything is thrown into upheaval," Biggs said.

Why Social Security's trust funds face depletion dates

Social Security draws from multiple sources to pay benefits — ongoing revenue from payroll taxes and income taxes, as well as trust funds that are used to supplement the monthly checks beneficiaries receive.

Yet as more people collect Social Security retirement benefits, the trust fund used to pay those benefits is running low. The depletion date — currently 2033 — represents the point at which the fund will be exhausted.

At that point, it is expected that 79% of those benefits will be payable.

Social Security has more than one trust fund, including one that pays retired workers, their families and survivors, and a second that pays disability benefits.

Together, those trust funds have a projected depletion date of 2035, when 83% of benefits would be payable. While merging the funds could provide additional financial runway, doing so is not allowed under current law, according to the AEI report.

How broad benefit cuts could be avoided

As the November election approaches, experts generally hope a new president and new Congress will address Social Security's solvency.

"We far prefer for Congress to enact comprehensive Social Security reforms before 2033," the AEI report says.

The sooner Congress acts, the better it will be for all beneficiaries involved, to give them more certainty, said Shai Akabas, executive director of the Bipartisan Policy Center's Economic Policy Program. A recent survey from Nationwide Retirement Institute found 72% of adults worry Social Security will run out of funding in their lifetime.

The roughly 21% across-the-board benefit cut is "untenable and unsustainable, both politically and financially from a household perspective," Akabas said.

However, if lawmakers fail to come to an agreement by the depletion date, the president could move to protect beneficiaries from the worst effects of the ensuing cuts, according to Biggs and Shapiro.

Once the depletion date arrives — whether it remains 2033 or shifts to another year — the president at the time could move to cap monthly benefits at about $2,050, the AEI report proposes.

That change would reduce payments to beneficiaries who receive more than that amount and make Social Security solvent without adding new debt or increasing taxes.

At the same time, about half of all retirees and survivors would still receive their full benefit payments. Notably, no retiree would be pushed into poverty, according to the research.

If the fund depletion date were crossed, lawmakers would face an unprecedented situation.

What happens next would depend on the interpretation of Constitutional law. That could prompt litigation, the report notes, including from beneficiaries who may not receive the benefits they were promised.