Key Points
The Social Security Trust Fund is expected to be depleted by late 2032 or early 2033.
Congress is under pressure to find a solution.
Politicians understand that the well-being of Social Security is a near-universal concern.
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Whether you're a retiree or planning for retirement, it's natural to be concerned about what may become of the Social Security benefits you've earned. There's no denying that the math isn't looking good for Social Security right now. Here's why, and what Washington can do about it.
How it's funded
Since 1937, Social Security benefits have been funded by payroll taxes on working Americans and their employers. For many years, the process worked because there were many more workers than retirees. However, as more Americans retired and couples began to limit their family sizes, the number of workers available to contribute to the trust fund grew smaller.
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Even if the trust fund were to run dry, Social Security recipients would receive 77% of their benefits, thanks to those still working. Still, for a retiree with a $2,000 monthly benefit, that means losing $460 per month, or $5,520 annually.
Will Congress step in?
Given all the news coming out of Washington, D.C., it's easy to overlook the work that members of Congress are doing behind the scenes. A single Social Security Administration (SSA) website page lists nearly 200 proposed options to strengthen Social Security, dating back to 1993.
In a CNBC poll, the majority of Americans ranked Social Security as one of the most important issues for them when voting, putting members of Congress in a no-win situation. Voting on a package to strengthen Social Security would mean going on the record by voting. Whether they vote to raise the taxable income cap, reduce benefits, raise the retirement age, or cut benefits, their constituents will know how they voted, potentially putting their jobs at risk.
Some members of Congress may want to wait until the crisis is only months away, forcing a bipartisan compromise that spreads the glory or the blame.
What Congress has to work with
Between think tanks, voter opinion, and special interest groups, Congress has a stack of potential solutions to work through. Here are some of the most commonly mentioned:
- Increase the taxable maximum ceiling on income: In 2026, the maximum ceiling is $184,500. Any earnings beyond that amount aren't subject to Social Security taxes.
- Increase the payroll tax from 12.4% to 12.6%: Employees will pay 6.3%, and employers will pay the other 6.3%.
- Increase retirement age for high earners: The full retirement age (FRA) would be increased for people in the top two-fifths of the U.S. wage distribution.
- Tax all Social Security benefits for high earners: Rather than taxing half or 85% on Social Security benefits, high earners would pay taxes on any Social Security dollars they receive.
This isn't the first time Social Security has needed an adjustment. In 1983, Congress passed reforms to give Social Security the boost it needed to continue uninterrupted. While today's financing challenge is twice as large, 1983 is proof that bipartisan cooperation can make it happen.
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