Are We Past the Point of Fixing Social Security? What Experts Say Are the Best Solutions

Get personalized, AI-powered answers built on 27+ years of trusted expertise.

Social Security will run short of money within a decade, and experts say just about every viable fix would be politically painful.

As more Americans retire, payroll taxes from today's workers no longer cover benefits going out. The Old-Age and Survivors Insurance trust fund, which has been covering that shortfall, is projected to run out in 2032, according to the most recent estimates by the Congressional Budget Office.

Once the trust fund is gone, the program would automatically cut benefits to match incoming payroll taxes, unless Congress intervenes. Under current projections, a 7% benefit cut would occur in 2032, and benefits would shrink by up to 28% annually in the years that follow. Even now, with benefits at full strength, many beneficiaries are having to cut back on essential spending.

Investopedia spoke with three Social Security experts: Maria Freese, senior legislative representative at the National Committee to Preserve Social Security and Medicare; Alicia Munnell, a senior advisor at the Center for Retirement Research at Boston College; and Romina Boccia, director of budget and entitlement policy at the Cato Institute. These experts discussed the best ways to address Social Security’s funding gap.

Social Security beneficiaries are just eight years away from an automatic benefit cut. Experts say lawmakers should act now to ensure the program, widely viewed as the most effective government program for preventing poverty, remains solvent.

Congress has several options: allow Social Security to borrow funds, cut benefits, or increase payroll taxes. All require new legislation, which could be difficult, as raising taxes is unpopular and benefit cuts are opposed by many across the political spectrum.

“Even in the best of times, it's hard to do this because Congress doesn't like to raise taxes and it doesn't like to cut benefits, and we're...not [in] the best of times,” Munnell said.

The problem is manageable and could be solved before cuts hit, Munnell said. But Congress would need to turn its attention to the funding gap and implement solutions soon, she said.

The Social Security program is mainly funded by payroll taxes, which are automatically deducted from workers’ paychecks.

Workers pay 6.2% of their wages toward Social Security; employers match that with their share of Social Security payroll taxes. Wages above $184,500 in 2026 are not subject to the tax.

Munnell suggests increasing the taxable maximum to $300,000 and raising the payroll tax rate by 1 percentage point for both workers and employers.

Freese said she would take it a step further and eliminate the taxable maximum altogether, making all income subject to payroll taxes, including earnings from investments.

Raising payroll taxes would hurt working Americans most, Boccia said, especially as inflation squeezes household budgets and young workers struggle to afford their homes.

While more likely than other changes, Boccia said any "tax increase would be sudden, severe, and economically damaging, as well as politically highly unpopular.”

Social Security benefits could be cut to keep the program solvent.

One way would be to reduce benefits for higher earners, which would save the program money while leaving benefits in place for lower-income retirees, Boccia said.

Another way to trim benefits is to replace wage indexing with price indexing, reversing a 1977 change in how past earnings are credited. Benefits are based on a worker's 35 highest-earning years, with past earnings adjusted upward to reflect wage growth across the economy. Boccia argues the adjustment should track inflation instead, which would produce smaller benefits over time.

She says the current approach credits workers as if their wages had grown with the broader economy, no matter what they actually earned.

"Someone who earned a wage in the 1980s would get credit when they applied in the 2020s as if that wage had grown at the same rate as wages across the entire U.S. economy," Boccia said. "So that creates a huge bonus...for these individuals that they didn't pay for, and that's not based on their actual earnings."

Congress could also raise the full retirement age (FRA), at which beneficiaries can access their full benefits (now between 66 and 67). Some argue that raising the FRA would encourage Americans to work longer.

“Americans are living longer, but they're not necessarily working longer,” Boccia said. “People are collecting Social Security [longer], and that combination...has made the current benefit design unsustainable.”

However, Freese argues that increasing the FRA would mostly harm lower-income future recipients, who are less likely to have access to health care and are more likely to hold labor-intensive jobs. Those with lower incomes also tend to have shorter lives.

“You end up with a situation where you are forcing those people with the shortest life expectancy to take the benefit cut because they're not going to be able to work longer,” Freese said. “They're going to have to retire at whatever age their body gives out.”

Freese suggests increasing benefits instead to better support retirees, as most recipients say their Social Security benefits are not enough. She said the program's underlying benefit formula hasn't been expanded in decades, despite annual cost-of-living adjustments.

"There hasn't been a benefit increase in the program since the 1970s," Freese said. "So a lot of these benefits...have fallen by the wayside...and need to be improved."

While experts don't agree on the best solution, they do agree that something needs to be done.

"The closer it gets to the insolvency date, the harder it gets to come up with solutions, because the quicker they're going to have to be implemented," Freese said.

The most reasonable option will likely include a mix of tax increases and benefit cuts, Munnell said.

"There's this whole booklet that has 150 options," Munnell said. "And so it'd be very easy to put together a package that reflects a combination of both revenue increases and benefit cuts."

Get personalized, AI-powered answers built on 27+ years of trusted expertise.