Social Security Is Running Out of Time. What Happens Then?

Politicians often say that they’re committed to protecting Social Security without getting specific about how they’ll do it. But legislators elected to Congress in this year’s midterm elections will likely need to show their hand on how to shore up the program’s finances.

The Social Security trustees project that the retirement trust fund will be exhausted in 2032—just six years from now. The combined retirement and disability funds are projected to run dry in 2034. Those are likely best-case projections, as key underlying factors have deteriorated over the past year.

Trust fund exhaustion does not mean Social Security would stop paying benefits, but it would trigger an across-the-board benefit cut of about 22% for retirement benefits in 2032 without congressional action. Lawmakers elected to the House of Representatives and the US Senate this fall will likely be voting on Social Security reform. If politicians fail to act, they’ll be taking a vote of a different sort by allowing benefits to be slashed.

The projected shortfall is not new, and its primary drivers have been known for years.

Why Social Security’s Finances Are Deteriorating

Falling birthrates have resulted in fewer workers paying into the system, while growing wealth inequality has placed a larger share of national income above the wage cap subject to the payroll tax that funds Social Security.

The trustees’ forecast exhaustion year didn’t change in their June report, but the underlying demographic and fiscal trends point to further financial deterioration.

Long-range population projections were revised downward because of changes in assumptions about birthrates and immigration. The trustees lowered their fertility assumption to 1.75 children per woman from 1.90 and lowered projected immigration of “temporary or unlawfully present immigrants,” while also assuming higher emigration from that population in the near term.

Statutory changes to income tax rates and standard deductions under the One Big Beautiful Bill Act further reduced revenue to the trust fund.

Taken together, these factors produced a big hit on Social Security’s actuarial balance—a figure that reflects the size of the increase in payroll taxes that would be required to make the program solvent for 75 years. Last year, the balance was 3.82%, but this year it jumped to 4.42%. That’s a huge change.

What Happens If the Social Security Trust Fund Runs Out?

Functionally, these funds operate like checking accounts, where tax revenue and interest flow in and benefits are paid out. After reforms in 1983, the trust funds built up substantial reserves. Those changes increased payroll taxes, introduced taxation on benefits for higher-income retirees, and gradually raised the full retirement age to 67 from 65. Decades of economic growth further boosted payroll tax collections.

However, net drawdowns began in 2021 as baby boomer retirements accelerated. The upcoming solvency cliff marks the point when reserve funds are completely depleted. At that point, Social Security could pay benefits only using incoming tax revenue, as it lacks legal authority to borrow to make up a shortfall.

An immediate retirement benefit reduction of 22% would severely impact a huge share of the US population. More than 59 million Americans received retirement benefits in August, and another 11 million received disability benefits. The cuts would be especially difficult for the 40% of beneficiaries who rely on Social Security for at least half their income. Current retirees would suffer the immediate brunt of these cuts, and younger workers would face significant disruption to their long-term retirement plans.

A wide array of policy ideas have been proposed over the years to avert insolvency.

How Congress Could Fix Social Security

Democrats have long pushed for revenue increases alongside targeted benefit expansions for low-income seniors. Before President Donald Trump’s era, Republicans favored benefit reductions, arguing that cuts were necessary to preserve the system for future generations. Trump has repeatedly said he opposes raising the retirement age or cutting benefits; he has suggested that eliminating waste and fraud can help shore up finances, but budget experts agree there’s nowhere near enough of that saving available to address the shortfall. The position of Republican lawmakers is less clear. They usually say they don’t want to cut benefits or raise taxes.

In other words, “protect.”

Ultimately, restoring solvency requires generating new revenue, reducing scheduled benefits, or combining both approaches.

Here’s how Karen Glenn, chief actuary of the Social Security Administration, put it during a webinar discussion of the latest trustee report in June:

“It is a simple math problem, but it’s not a simple political problem. We need to make choices addressing that shortfall between 2034 and 2100. We need to either raise scheduled revenue by 2034 by about one-third, reduce scheduled benefits by about one-fourth, or some combination of the two.”

Another wild card option if we get close to the cliff without a solution: Congress could pass legislation that would allow injection of general revenue to plug the shortfall—perhaps an emergency bridge to a more permanent solution. Some experts think the odds for this emergency move are rising, although it’s impossible to predict how bond markets would react, since it implies borrowing money to pay Social Security benefits.

If you’d like to experiment on your own with possible elements of a reform plan, try this interactive Social Security reform tool from the Committee for a Responsible Federal Budget.

Here’s a brief look at ideas that are most often discussed.

Revenue Options to Restore Social Security Solvency

• Lift or eliminate the payroll tax cap. There is a ceiling on the wages subject to the payroll tax. This year, it’s $184,500. Proposals to lift or eliminate the cap have gathered bipartisan support; for example, Democratic Sen. Elizabeth Warren of Massachusetts and Republican Sen. Bernie Moreno of Ohio have introduced legislation to eliminate the cap.
• Raising the payroll tax rate. This measure would increase tax obligations for both employers and workers, likely requiring a multiyear phase-in.
• Taxing investment income. The idea here is to tax nonwage investment income of high earners with a 6.2% tax.

Potential Social Security Benefit Cuts

• Change the way initial benefits are set. Social Security uses an index of national wage growth to adjust lifetime earnings history to current levels. In a nutshell, the proposal would tie initial Social Security benefits to future changes in prices rather than average wages; it’s a benefit cut because wages generally rise more quickly than inflation.
• Means-test benefits. Some policy experts have argued that wealthy households could easily absorb benefit cuts. The Committee for a Responsible Federal Budget, for example, has proposed a $100,000 cap on household benefits and means-testing the annual cost-of-living increase.
• Raise the retirement age. Some Republicans have proposed gradually raising Social Security’s full retirement age to 69 from 67, effectively reducing benefits for future retirees who claim at the new full retirement age. There’s no formal plan to do that currently, but it could surface as a bargaining chip in bipartisan negotiations. A higher retirement age is a benefit cut, because it raises the bar on how long people wait to receive their full benefit. Every 12-month increase in the full retirement age roughly equates to a 7% cut in benefits.

Why Benefit Cuts Are Becoming Less Likely

As the solvency deadline gets closer, the odds increase that the solution will rely on new revenue. Cutting the benefits of current retirees would be bad policy—so that means cuts would be borne by future retirees, and that would not generate savings quickly enough to restore solvency.

Keep in mind that the 1983 reforms have already translated into substantial benefit cuts. The net replacement of preretirement income from Social Security for an average worker retiring at age 65—accounting for the deduction of Part B premiums and personal income taxation of benefits—will be just 30% in 2035, down from 42% in 1995, according to the Center for Retirement Research at Boston College.

What’s more, benefit cuts make little sense at a time when surveys show that a very high percentage of Americans are worried about their ability to maintain their standard of living in retirement.

Americans Face Growing Retirement Security Challenges

According to research by the National Institute on Retirement Security, 80% of Americans believe the US faces a retirement crisis—up from 67% in 2020. Similarly, the Employee Benefit Research Institute found that only 61% of current workers feel confident about their retirement security, down from 67% last year. Escalating healthcare costs, inflation, and potential government changes to current benefits remain primary concerns for workers and retirees.

Retirement savings can supplement Social Security to meet living needs, but lower-income households don’t generate sufficient income to save much for retirement, and they are less likely to be covered by a workplace plan. Among households aged 55-64 that have a 401(k), the median balance for the lowest quintile in 2022 was just $25,000, and it was just $220,000 in the third quintile, according to the Center for Retirement Research at Boston College.

Efforts to get Americans to save more are stalling, according to a new survey by Goldman Sachs Asset Management. Goldman found that the share of respondents who increased their retirement savings fell 16% year over year to 39%, and the share who reduced their savings increased to 14% from 8%. “Household costs are increasingly competing with retirement savings,” says Chris Ceder, senior retirement strategist at Goldman.

At the lowest end of the income scale, poverty among older Americans is rising. The US Census Bureau reported recently that the rate of poverty for Americans aged 65 and higher rose to 15.4% in 2025—the highest rate for all age groups, and up sharply from 12.0% in 2019.

“That’s a big shift, and it’s the only age group that has seen that shift growing every single year,” says Claire Casey, president of the AARP Foundation. “This is a trend, and it is going to continue and get worse unless we act.”