Concerned About Social Security Insolvency? Here's What's Likely to Happen Next

For millions of retirees, Social Security is the bedrock of financial security. If that's true for you, you may be concerned by the knowledge that the Social Security trust funds are set to run dry by 2033. Here, we look at the current state of Social Security and what's likely to happen to this important retirement fund.

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The reality

While it's easy to buy into the fear that Social Security is going "bankrupt," it's not an accurate description of what's going on. The Social Security trust funds -- which have been building monetary reserves for decades -- are projected to be depleted in the next seven years. Once the trust funds are exhausted, the program will rely solely on the payroll taxes of current workers to cover approximately 75% to 80% of scheduled benefits for both primary recipients and spousal beneficiaries.

What's likely to happen next

As Congress works to find a solution to the Social Security issue, human nature is likely to get in the way. Each side of the aisle will want to fight any policy that leaves its donors unhappy (like tax increases), and both sides will want credit for "saving" the program.

Still, Congress has no choice but to address the issue of insolvency head-on. Here are three of the most popular options on the table:

1. Raise the payroll tax: Currently, you and your employer each pay 6.2% of your wages toward Social Security taxes. Even a modest increase of 0.3% to 0.8% may significantly extend the program's solvency and the availability of full monthly benefits.
2. Raise the full retirement age: Some in Congress want to raise the full retirement age (FRA) from 67 to 69, although a Congressional Budget Office (CBO) report shows that doing so would cut lifetime Social Security benefits by 13%. It's also an incredibly unpopular option among American workers.
3. Increase or eliminate the payroll tax cap: In 2026, Americans pay Social Security taxes on the first $184,500 of earnings. That means a person earning $184,500 pays the same amount in Social Security taxes as someone earning millions or billions a year.

What's likely to happen next

While it's impossible to know for certain what Congress will do, here's what's likely to happen:

• Delay for as long as possible: Historically, this is what's happened. For example, in 1983, when the Social Security Administration (SSA) was weeks away from making cuts, Congress finally passed legislation that gave it new life.
• Adopt a combination approach: No single fix is likely to be politically palatable (after all, that would mean one side getting to take credit), and no single approach will be enough to save benefits on its own. It's more likely that Congress will combine several smaller changes that address the immediate need for intervention.
• Current Social Security benefits will be protected: It's almost certain that any reform package will exempt current retirees, those near retirement, and Social Security disability recipients from benefit cuts. The reason is simple: Seniors vote in high numbers, and any cuts for those currently receiving benefits would be politically toxic.

No matter what Congress ultimately decides to do, it's clear that time is running out.

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