About 75% of adults aged 50 and up worry that Social Security will run out of funding in their lifetime. And younger generations don’t think they’ll ever see a dime of the Social Security benefits they have earned (45% of Gen Z and 39% of millennials).
But what’s the reality? Is Social Security actually going broke? Not exactly, since the program isn’t running out of money entirely. There’s always money coming in from payroll taxes. But a big budget shortfall is looming. The Old-Age and Survivors Insurance (OASI) Trust Fund, which funds retirement and survivor benefits, is projected to go insolvent by 2032. That’s just six years from now.
What Does This Mean?
First, let’s understand how Social Security is funded. Payroll taxes from both workers and their employers are the primary source of revenue. “The Social Security trust funds hold money not needed in the current year to pay benefits and administrative costs and, by law, invest it in special Treasury bonds that are guaranteed by the U.S. government,” according to the Social Security Administration (SSA). “A market rate of interest is paid to the trust funds on the bonds they hold, and when those bonds reach maturity or are needed to pay benefits, the Treasury redeems them.”
The problem is that our population is aging and there won’t be enough money coming in to cover expected benefits by 2032 (or 2033 by some projections). “In 1960, there were more than five workers paying Social Security taxes per beneficiary, but that ratio has dropped to less than three-to-one,” according to the Bipartisan Policy Center. “Since 2010, the program has paid out more in benefits each year than it has received in tax revenues, drawing down on accumulated trust fund reserves to cover the difference,” says the Economic Policy Innovation Center (EPIC).
By law, Social Security can’t spend money it doesn’t have. So once the trust fund reserves are exhausted, benefits will automatically be limited to incoming revenue — resulting in an expected 23% benefit cut for all retirement and survivor benefits. “Those cuts will apply to all recipients, regardless of whether they are 65 or 95 years old, or whether they have $20,000 or $200,000 in annual income,” EPIC reports.
This would be a huge blow to the majority of retirees. The SSA reports that nearly nine out of 10 people aged 65 and older were receiving a Social Security benefit as of Dec. 31, 2024. Those benefits represent about 31% of the income of this group. In one scenario, a retired couple with an annual income of $75,000 could see their monthly benefits drop by over $900. Or a single senior citizen with only $30,000 in annual income might lose $350 per month.
Can the Problem Be Fixed?
The short answer is “yes, but not easily.” Social Security has long been known as the “third rail” of American politics because the program is so popular that politicians wouldn’t dare cut it or even reform it — in the same way that any sane person would avoid the deadly third electrified rail of a subway system.
The last time Congress enacted any meaningful reform to the program was 1983, when there was another insolvency crisis. President Ronald Reagan wanted to overhaul the program and appointed a bipartisan commission to come up with a plan. Pragmatists prevailed with both Democrats and Republicans making concessions, and the final package (which increased payroll taxes and raised the retirement age) passed by large bipartisan margins.
It’s hard to imagine that kind of deal-making in today’s bitterly divided government. While several senators and representatives have introduced legislation to shore up Social Security, there’s no serious effort to address the issue right now. It isn’t a priority for the Trump administration, though the president has promised to protect the program. But as the clock ticks toward 2032, there will be increasing pressure for Washington to act.
What Are the Possible Solutions?
Fixing the expected Social Security shortfall would likely mean a combination of increasing revenue, increasing the retirement age, and/or reducing benefits
Increasing the payroll tax, while not a popular idea, is an obvious solution. The current Social Security tax is 6.2% for employees, matched by employers for a total of 12.4%. Self-employed persons pay the full 12.4%. One possible solution is raising the tax to 13.4%. “Increasing the payroll tax by 0.1 percentage point from 2026 through 2035 until it reached 13.4% would raise $601 billion in new revenues for Social Security over the next 10 years,” according to the Peter G. Peterson Foundation. “The increase would shrink the program’s 75-year shortfall gap by 26%.”
The government could also raise or even eliminate the Social Security tax cap, which limits payroll taxes to incomes under $184,500 in 2026. Any income above that amount isn’t subject to the payroll tax, so 24 million high earners stop paying into the program when they reach the cap each year. Changing or eliminating the cap could generate trillions in new revenues, experts say.
Another proposal would enact a new tax on investment income to shore up Social Security. A 12.4% tax on investment income of taxpayers with adjusted gross incomes of over $200,000 (or $250,000 for joint filers) could raise an additional $1.3 trillion over 10 years.
Social Security could also extend its runway by raising the full retirement age, which is currently 67 for those born in 1960 or later. Many Americans are living longer and working longer so a new retirement age of 70 doesn’t seem unreasonable. The retirement age hasn’t changed since the 1983 reforms, which gradually increased the age by two months per year.
Perhaps the least popular solution would be cutting benefits. But if nothing is done to address the 2032 insolvency, that will automatically happen. One plan evaluated by the SSA would reduce total benefits for all new beneficiaries by 5%, raising an additional $134 billion over 10 years. Or the SSA could offer lower annual cost of living increases.
Whatever reform is eventually adopted would most likely only apply to future retirees, experts say. It’s unlikely Washington would cut benefits for people currently receiving benefits. It also seems likely a combination of the above scenarios (and others not presented here) would be needed to ensure long-term solvency. Expect to hear more about the Social Security crisis as we inch closer to 2032.