Social Security Cuts Target High-Income Earners, Study Shows

Reducing Social Security benefits for higher earners could address 76% of the program’s long-range actuarial imbalance, according to recent studies. We’ve long known that Social Security faces financial challenges, but now there’s compelling evidence showing how targeted cuts might preserve the system while protecting the most vulnerable.

When examining the various approaches to reduction in Social Security benefits, the data reveals significant differences in impact. While the upper option would shield about 13% of beneficiaries in the lowest household income quintile, it would primarily affect the top 30% of newly eligible beneficiaries whose Average Indexed Monthly Earnings exceed the new bend point. Furthermore, less aggressive approaches like the five-point option would reduce the imbalance by 31%, and the three-point option by only 18%.

Importantly, all proposed reforms come with tradeoffs. Despite the financial improvements, all three options would increase the number of aged beneficiaries facing poverty by 2070 compared to currently scheduled benefits. As we explore these complex policy choices, understanding who bears the burden of these potential cuts becomes critical to evaluating their fairness and sustainability.

Study Reveals Who Faces the Largest Social Security Cuts

A recent analysis of proposed Social Security reforms reveals significant differences in how benefit reductions would impact Americans across income levels. The data shows that potential cuts would not affect all beneficiaries equally, with distinct patterns emerging across economic strata.

High-income earners see steepest reductions

The most substantial Social Security cuts would fall on those with higher lifetime earnings. High-income couples could face benefit reductions of approximately $24,000 annually following trust fund depletion in 2033. This represents a significantly larger absolute reduction than the $11,000 annual cut projected for low-income couples.

One proposal specifically targets beneficiaries based on income thresholds. Under this approach, individuals with modified adjusted gross income above $60,000 (or $120,000 for joint filers) would see their benefits gradually reduced. The percentage reduction would increase linearly, reaching 50 percent for single filers with incomes of $180,000 and above, or joint filers with incomes of $360,000 and above.

Additionally, another reform option would gradually increase the normal retirement age exclusively for people in the top two-fifths of the nation’s wage distribution. For those in the highest fifth, the retirement age would rise by two months annually starting in 2037 until reaching age 70 in 2054.

Low-income groups largely shielded from cuts

Notably, several proposed reform options deliberately protect lower-income beneficiaries. About 20 percent of beneficiaries aged 62 and older would remain completely unaffected by certain proposed changes even by 2070. This includes 93 percent of disabled workers and 78 percent of retired disabled beneficiaries.

The design of these proposals aims to make Social Security more progressive. Nevertheless, if no changes are made and across-the-board cuts become necessary due to trust fund depletion, low-income Americans would suffer disproportionately. Such automatic cuts would reduce income by 18 percent for those in the bottom fifth of income distribution, compared with only 5 percent for those in the top fifth.

Consequently, many policy experts advocate for targeted approaches rather than universal reductions. These targeted cuts recognize that Social Security provides much higher benefits relative to earnings for the lowest quintile of earners.

Policy Options Reduce Benefits in Different Ways

Several policy options exist for reforming Social Security, each with distinct approaches to reducing benefits. The Congressional Budget Office has analyzed three specific alternatives, illustrating how formula changes could address program shortfalls.

Three-point and five-point options apply across the board

The three-point option would create an additional bend point at the 70th percentile of earners—roughly $5,880 in 2022 dollars. Under this approach, approximately 70 percent of newly eligible beneficiaries would see no change to their benefits, whereas the top 30 percent would experience reductions. This option would decrease Social Security outlays by $40 billion through 2032.

In contrast, the five-point option establishes a new bend point at the 50th percentile of earners—about $3,930 in 2022 dollars. This alternative would be phased in over nine years, affecting half of all new beneficiaries. By 2032, those impacted would receive on average 20 percent less in benefits than under current law.

Upper option targets middle and high earners

The upper option uses the same bend point as the five-point option but implements changes more rapidly—over five years instead of nine. This accelerated timeline would reduce Social Security outlays by $184 billion through 2032, nearly twice the savings of the five-point option.

Currently, most higher-income seniors (those with incomes between $80,000 and $270,000) receive nearly two-thirds of certain tax benefits, even though they comprise only a quarter of people over 65.

Reduction in Social Security benefits varies by formula

The current benefit formula includes two bend points at which the replacement rate changes. In 2025, these points are at $1,226 and $7,391 monthly earnings, with the formula replacing 90% of the first portion, 32% of the middle range, and 15% of earnings above the highest bend point.

All three reform options would maintain the 90% replacement rate for the lowest bracket. Nevertheless, they would reduce the highest PIA factors from 15% to just 5% for top earners. This progressive approach preserves benefits for lower-income beneficiaries while simultaneously addressing long-term funding challenges.

How Cuts Affect Poverty Among Retirees

The impact of Social Security reform extends beyond budget mathematics to real-world consequences for millions of Americans. Various reform proposals show markedly different effects on poverty rates among retirees.

Upper option results in fewer aged in poverty

Studies indicate that reducing Social Security benefits for higher earners through the upper option would have the least harmful impact on poverty rates. Indeed, this approach protects approximately 93% of disabled workers and 78% of retired disabled beneficiaries from any benefit reductions. Moreover, roughly 20% of beneficiaries aged 62 and older would remain completely unaffected by these changes even by 2070.

Comparison with scheduled and payable benefits

Should no action be taken to strengthen Social Security, the consequences would be severe. Once trust funds are exhausted, automatic benefit reductions would double the poverty rate among beneficiaries from 2% to 4%. This translates to 875,000 additional beneficiaries forced into poverty. Essentially, lower-income beneficiaries would suffer disproportionately, facing a 19.8% reduction in total income, compared with just 5.8% for those in the highest income quintile.

Impact on survivor-only beneficiaries

Survivor-only beneficiaries, primarily women, face particular vulnerability to benefit cuts. This group would experience benefit reductions approximately twice as large as those for retired workers. Since survivor-only beneficiaries are comprised of about 92% women who receive benefits for almost 22 years on average (compared to 12 years for retired workers), they endure roughly 10 additional years of reduced benefits.

Without Social Security altogether, the poverty rate among older adults would jump from 10.1% to a staggering 37.3%. Social Security remains especially crucial for women and people of color, bringing 9.4 million older women above the poverty line. For minority seniors, the program’s absence would result in poverty rates of 45.6% among older Latino adults and 49% among older Black adults.

Solvency Improves but Gaps Remain

The financial sustainability of Social Security hinges on which reform option policymakers ultimately choose to implement. Recent analyses show varying degrees of effectiveness across proposed changes to the benefit structure.

Upper option closes 76% of long-term deficit

Presently, the most promising approach for addressing Social Security’s financial challenges is the upper option, which would close approximately 76% of the program’s long-term actuarial deficit. This approach primarily targets reducing social security benefits for higher earners while preserving support for those with lower incomes. Similar proposals like Shield 0% could potentially eliminate the entire actuarial deficit.

Three-point and five-point options offer limited relief

In contrast, less aggressive approaches provide substantially smaller improvements to system solvency. The three-point option would fix just 18% of the deficit, barely moving the needle on long-term sustainability. Meanwhile, the five-point option performs somewhat better, addressing roughly 31% of the shortfall. Both alternatives still leave substantial funding gaps that would require additional measures.

Trust fund exhaustion still projected by 2037

Even with these reforms, Social Security faces significant time constraints. Under current projections, the combined OASI and DI Trust Funds will reach exhaustion in 2037. At that point, continuing tax revenue would cover only 76% of scheduled benefits, forcing an immediate 24% reduction unless additional funding sources are secured beforehand.