Social Security's 2032 cliff is now one Senate term away
The senators elected this week will still be in office when Social Security's main trust fund is projected to run dry.
The program's trustees said in their 2026 report that the Old-Age and Survivors Insurance trust fund, which pays retirement and survivor benefits, will be depleted in the fourth quarter of 2032. After that, incoming payroll taxes would cover only about 78 per cent of scheduled benefits. Unless Congress acts, that means an automatic cut of about 22 per cent for every retiree.
The Congressional Budget Office is gloomier. It expects depletion in mid-2032 and a cut of about 26 per cent, CNBC reported.
What it means in dollars
The Committee for a Responsible Federal Budget estimates that a 24 per cent cut would reduce the average monthly benefit by about $500. Retirees in 29 states would lose more than that.
If lawmakers merged the retirement fund with the disability fund, the trustees say, the combined fund would last until the third quarter of 2034, with a 17 per cent cut at that point.
Waiting for the deadline
There are only a few ways to close the gap: higher taxes, lower benefits or both. Some Democratic candidates have proposed raising or removing the cap on earnings subject to the 6.2 per cent payroll tax, which in 2026 applies to the first $184,500.
Few expect action soon. Jessica Riedl of the Urban-Brookings Tax Policy Center told CNBC that payroll tax rises are "extraordinarily unlikely" in the next couple of years. "In Washington, they love to wait until the last minute," she said.
Shai Akabas of the Bipartisan Policy Center sees one upside to a hard date. "Nothing gets Congress to move like that type of deadline," he said. But every year of delay makes the shortfall bigger. Research from George Mason University's Mercatus Center warns that putting off reform could also push up Treasury yields, because the trust funds are invested in special government bonds.
*Image: President Franklin D. Roosevelt signs the Social Security Act, August 14, 1935. Photo: Social Security Administration / Wikimedia Commons, public domain*
