Social Security’s retirement “trust fund” is going from bad to worse. A new estimate from the program’s Trustees projects it to run out of money at the end of 2032, one quarter earlier than forecast last year.
The dire situation is nothing new. But last year’s tax and spending law, pushed by President Donald Trump, accelerated the timeline for the trust fund’s demise with tax cuts. Republicans established a $6,000 senior deduction, which reduces the taxes that qualifying seniors pay on Social Security benefits. That, in turn, cut revenue flowing into the fund. Another factor worsening the program’s finances is slowing immigration.
What comes next for recipients and future beneficiaries? Here’s a look at what’s ahead.
Is Social Security Running Out of Money to Pay Benefits?
Short answer: no. But the reserves in its trust fund are running dry sooner than previously anticipated. As a result, the program is running short of what it needs to pay promised benefits in full.
Under current law, Social Security is self-financed and can only pay benefits from its own funds: the 12.4% payroll tax paid by employees and employers and secondarily, the income taxes paid on Social Security benefits and interest earned on the trust fund’s bonds.
Those rules mean that the trust fund is making up the difference between what’s collected in revenue and what’s owed in benefits. That money is running out at a faster pace due to a mix of tax cuts, demographic changes, and other factors.
If the fund is allowed to run dry 2032, Social Security won’t have enough to cover its obligations. And under federal law, the government can’t simply make up the difference from other sources of revenue. Recipients would face an automatic benefit cut of 22% if Congress doesn’t pass a law by 2032 to right the program’s finances.
That kind of cut would take a big bite out of retirees’ income. A benefit cut of 24% in 2032 would result in an average monthly loss of $500, according to an analysis by the Committee for a Responsible Federal Budget that came out before the Trustees’ report.
So Is Congress Likely To Save Social Security?
Yes, but perhaps not right away. The last time the program came close to running out of money was in the early 1980s, and Congress struck an 11th hour deal to shore up the program’s finances in 1983.
House Speaker Mike Johnson has said Republicans have a plan to tackle “entitlement programs” next year. But many analysts expect Congress to pass legislation at the last minute to plug the shortfall. Failing to do so and allowing catastrophic benefit cuts to take effect would be politically disastrous.
The two major ways to close the financial gap, under current law, would be raising taxes and/or cutting benefits. Congress will likely have to do some of both. Lawmakers could also change budget and spending rules, allowing Social Security to borrow money (like the rest of the federal government). But that would add substantially to the country’s debt.
The 1983 deal could be a template for changes now. As part of those reforms, Congress made benefits taxable for the first time above certain income thresholds and raised the full retirement age—at which recipients are eligible for 100% of their earned benefits—to 67 from 65. The increase stretched over decades, so no one on the cusp of retirement had the rug pulled out from under them.
Lawmakers will probably take an incremental approach this time, too. That means younger generations will bear the brunt of changes. In addition to raising the full retirement age, which amounts to a de facto benefit cut, possible fixes include raising or eliminating the taxable salary cap and reducing the annual cost-of-living adjustment.
These fixes are long overdue. Decades ago, Social Security’s actuaries predicted that the population of wage-earning Americans would dip, relative to retirees. But there’s another factor at play: as the incomes of the highest earners grew faster than those of lower earners, a smaller share of overall wages became taxable for Social Security purposes. Income is subject to the Social Security payroll tax only up to a certain cap—$184,500 for 2026.
Back in 1983, about 90% of covered earnings fell below the taxable maximum for that year. Today that share is around 82.5%. That means more uncovered wages and less money flowing into the trust fund.
Does This Mean I Should Claim Social Security Early?
No. The program isn’t going away. As long as workers continue to pay payroll taxes, there will be money flowing into the system to pay your benefits whenever you decide to claim. Claiming early out of fear that Congress won’t pass a fix isn’t a good reason at this juncture.
You could also pay a big financial price. Claiming at your earliest eligibility of 62 permanently reduces your benefit. For those born in 1960 and later, you’ll receive 30% less than what you’d get at your full retirement age of 67. Waiting until age 70 will give you 124% of what you’d receive at 67.
There are reasons to claim Social Security early, but fear isn’t a good one, says Ray R. Harris, president at Social Security Claiming Experts in Chicago, which advises clients on claiming strategies. Harris often walks through the history of the program with clients, pointing out that in 1983, lawmakers acted with just months to spare. When clients realize that, “the fear gets displaced by facts,” Harris says.
This Barron's article was legally licensed by AdvisorStream.
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