A Law Passed by Congress in 1983 Is More Relevant Than Ever for Social Security Retirees in 2026

Social Security will complete a transition more than 40 years in the making this year. In 1983, Congress enacted an amendment to the Social Security Act, increasing the full retirement age from 65 to 67 years old. But it metered out that increase over decades. 2026 will be the last year anyone younger than 67 reaches full retirement age.

That makes the 1983 law particularly relevant to retirees, as has been the case over the last several years. But there's another reason why retirees (and all Americans) should know about Congress' actions from nearly 43 years ago. History is repeating itself, and Congress must take similar actions to reform Social Security before mandatory benefit cuts take effect.

Image source: Getty Images.

The impact of the 1983 law on Social Security today

The 1983 Social Security reform came just in the nick of time. The program was just months away from being unable to pay all benefits due to retirees, as it quickly depleted the Old-Age and Survivors Insurance trust fund.

One of the biggest changes is the increase in the full retirement age. That's the age where retirees are eligible to receive their full benefits. Retirees can notably still claim as early as age 62, but with an older full retirement age, the penalty for doing so is steeper. Likewise, they can delay benefits up to age 70, but there are fewer years to accrue delayed retirement credits and increase benefits as a result of the older full retirement age.

In effect, the 1983 amendment was a benefit cut. However, it was implemented in a manner that allowed workers to prepare for smaller Social Security benefits in retirement over the course of several decades.

Thanks to the numerous changes implemented by Congress, the Social Security chief actuary estimated that the program would remain financially solvent for at least another 75 years. Unfortunately, the actuary was unable to foresee the changing demographic and political landscape over the next several decades.

As a result of changes that negatively impact Social Security, the Old-Age and Survivors Insurance trust fund is once again on a trajectory toward depletion. If that happens, the current law states that Social Security will only be able to pay out as much in benefits as it receives in tax revenue. The board of trustees estimates that's only 77% of scheduled benefits.

The most recent update from Social Security's chief actuary is that the trust fund is set to be depleted by late 2032. That's a lot more time than Congress had in 1983, but the problem already requires extreme action from Congress. Waiting until the start of the next decade will make the necessary changes even more drastic.

The challenge Social Security faces today

When Congress enacted its 1983 law, its actions were informed by the assumption that demographic trends where retirees live longer, and households have fewer children, would stabilize. In fact, they did. For a long time, the ratio of retirees to the working-age population remained relatively stable, ranging between 3.2 and 3.4, from 1974 to 2008.

However, the baby boomer retirements and the trend of younger generations having fewer children have had a severe impact on that ratio. In 2024, there were just 2.7 workers per Social Security beneficiary. As a result, the program is now running a deficit as fewer workers are paying into the system and more retirees are drawing benefits.

Additionally, wage inequality has led to a smaller percentage of total wages falling below the taxable earnings cap for Social Security. For 2026, any wages above $184,500 for an individual won't incur Social Security taxes. With higher earners experiencing faster wage increases than lower earners, the tax now applies to approximately 83% of total wages, compared to 90% in 1983.

If Congress wants to overcome the deficit and set Social Security on a path to solvency for another 75 years, it'll have to take some severe and immediate action. That could involve raising the full retirement age further, increasing the Social Security tax, and raising the maximum taxable wages subject to the tax. These are all factors Congress considered in 1983, and they're worth revisiting today. In fact, Congress will likely need to implement a combination of strategies with significant compromises from both retirees and workers to ensure the program's longevity.

The Motley Fool has a disclosure policy.