3 Things That Can Happen If Social Security Runs Short of Money

Quick Read

• Social Security’s OASI Trust Fund is projected to run dry in late 2032, potentially triggering a 22% benefit cut reducing average monthly payments from $2,084 to $1,625.

• Congress could raise payroll taxes or eliminate the wage cap to boost funding, but higher taxes risk slowing hiring and undermining Social Security’s payroll tax revenue.

• Lawmakers could restructure Social Security by raising the full retirement age, implementing means testing, or changing the benefit and COLA formulas.

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If you’ve been following the news, you may be aware that Social Security is facing a serious financial crisis. The program’s Old-Age and Survivors Insurance (OASI) Trust Fund is expected to run dry during the final quarter of 2032.

At that point, Social Security will still have revenue coming in from payroll taxes. But it won’t be enough to meet its financial obligations in full.

So what happens next? Here are three things that could happen.

1. Benefits could be reduced broadly

If Social Security’s OASI Trust Fund is exhausted, the program may have to reduce benefits across the board. The most recent estimate from the Social Security Trustees points to a 22% benefit cut. That would reduce the average monthly $2,084 retirement benefit to about $1,625.

Benefit cuts could be catastrophic for retirees who rely on Social Security for all or the majority of their income. And smaller benefits would also mean smaller cost-of-living adjustments (COLA) each year, thereby compounding the pain.

2. Congress could increase the program’s funding

If Social Security actually runs short on money, Congress could implement steps to increase the program’s funding. That could mean raising the payroll tax rate for all workers. It could also mean raising taxes on higher earners only by increasing or eliminating the wage cap, which limits the amount of income taxed for Social Security purposes each year.

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Unfortunately, higher taxes could be a burden for working Americans, many of whom are already struggling financially. And if general payroll taxes are raised to help fund Social Security, companies will bear the brunt, too.