With the current uncertainty about every single thing happening with the federal government, a question I get asked a lot is what I think will happen to Social Security.
While I do believe reducing Social Security would be difficult to enact unilaterally (and SO unpopular that no sane politician would try it), there is the looming depletion of the Social Security trust in 2035 (?- this changes all the time) to consider.
If the Social Security trust fund becomes insolvent, Congress could preserve the current benefit payments through a combination of revenue increases and benefit adjustments. Here are some options.
Show Me the Money
- Raise the payroll tax cap: Currently, only earnings up to $168,600 (2024) are taxed. Eliminating this cap could address 61-90% of the shortfall, though it wouldn’t fully resolve the 75-year deficit.
- Increase payroll tax rates: A 1.5% increase (split between employers and employees) could extend solvency for decades.
- Tax investment income or expand payroll taxes: Applying Social Security taxes to non-wage income (e.g., capital gains) for high earners could improve the situation.
Belt Tightening (not for Congress, for you)
- Means-testing for high earners: Reducing benefits for top income brackets while protecting low-income beneficiaries. Because Social Security was always intended as a poverty reduction program (plus, they’ve already done this with Medicare), I can see this being a real possibility.
- Gradually raise the retirement age: Extending the age to 68 or 69 over time, reflecting longer lifespans. This seems tough. So many people aren’t healthy enough to work until 65, they would just wind up taking it early anyway.
- Modify cost-of-living adjustments (COLAs): Using a “chained CPI” formula to slow benefit growth. This, again, would be really hard on poorer retirees who don’t have stock investments to help them keep up with inflation.
How about a little bit of everything?
Most proposals blend tax hikes and benefit cuts. For example:
- A 3% payroll tax increase paired with modest benefit reductions for high earners could achieve 75-year solvency.
- The Brookings Institution’s 2025 blueprint combines lifting the payroll tax cap, expanding survivor/disability benefits, and gradual tax increases to avoid general fund reliance.
At the current course and speed, the trust fund will deplete by 2035, triggering automatic 20-24% benefit cuts.
If you don’t want to bank on your full Social Security benefit (and the bipartisan effort it would take to achieve lasting reform), ask your financial advisor to cut your benefit by 25% starting in 2035.
Sources:
- https://www.urban.org/urban-wire/if-social-security-runs-out-money-poverty-among-older-adults-and-people-disabilities
- https://new.concordcoalition.org/deep-dives/issue-brief/history-and-future-of-the-social-security-trust-fund-part-iii/
- https://www.brookings.edu/articles/fixing-social-security-blueprint-for-a-bipartisan-solution/
- https://www.reuters.com/business/finance/why-us-congress-restored-social-security-benefits-public-sector-retirees-2024-12-26/
- https://www.congress.gov/crs-product/RL33514
- https://www.cato.org/policy-analysis/congress-cant-outgrow-or-inflate-away-social-security-financing-problem
- https://www.cbo.gov/publication/60679
- https://www.ssa.gov/policy/docs/ssb/v70n3/v70n3p111.html
