Social Security is failing

OPINION:

The 2026 Social Security trustees report shows that Social Security is running out of time and money. Insolvency and automatic benefit cuts are projected for the end of 2032, meaning everyone in Generation X and younger is on track to never receive a single full Social Security benefit.

Reform is inevitable, and understanding the facts is the first step toward preserving the program for future generations.

First, Social Security’s trust fund will be insolvent in 2032, before anyone from Generation X or younger receives a single full benefit. Since 2010, the program’s costs have exceeded its tax revenue, forcing it to draw down trust fund reserves to maintain full benefits.

By the fourth quarter of 2032, those reserves will be exhausted.

Second, when Social Security’s trust fund runs dry, current law requires a 22% benefit cut because the program cannot pay out more in benefits than it has from incoming revenue. The Congressional Budget Office projects that an even larger, 28% reduction will be necessary.

Unless Congress specifies otherwise, those cuts would likely apply universally, regardless of age and income. For the average Social Security recipient who receives a $2,000 monthly benefit, a 22% reduction would equal about $5,300 less per year.

Third, Social Security has expanded far beyond its original intent. Created during the Great Depression to prevent poverty among the elderly, the program began with a 2% payroll tax and promised never to exceed 6% of workers’ pay. Today, it takes 12.4% and spends the equivalent of 15.4% of workers’ paychecks.

Benefit increases, program expansion and rising life expectancy have driven costs far beyond the system’s original design.

Fourth, Social Security’s financial shortfall is enormous. The trustees estimate the program’s 75-year unfunded obligations at $29.3 trillion, or about $215,000 per household. That is up by $4.2 trillion, or roughly $29,000 per household, from just last year.

Fifth, maintaining currently scheduled benefits would require an immediate 34% Social Security payroll tax hike, from 12.4% to 16.65%. For a median-income household earning $84,000, that would mean roughly $3,600 more per year and $14,000 in total Social Security taxes.

If those taxes were instead invested in a personal retirement account, they could generate enough retirement income to replace far more than 100% of a household’s preretirement earnings. By comparison, Social Security’s average replacement rate is about 40%.

Sixth, economic conditions, legislation and demographics all affect Social Security’s outlook. Improved assumptions for productivity and earnings growth modestly strengthened the program’s finances this year. At the same time, tax cuts for seniors in the One Big Beautiful Bill Act reduced Social Security revenue.

Last year, the Social Security Fairness Act increased costs by roughly $200 billion and shortened trust fund solvency by six months. Lower projected fertility rates and reduced temporary and undocumented immigration also weakened Social Security’s finances.

Seventh, the longer policymakers wait, the more painful the necessary reforms become. According to the trustees, a 34% payroll tax increase enacted today could restore long-term solvency. Waiting until 2034 would require a roughly 40% increase.

Similarly, benefit reductions needed to restore solvency would grow from 25.2% in 2026 to 28.5% in 2034.

Eighth, Social Security’s challenges are unfolding against a backdrop of nearly $39 trillion in federal debt and a declining fertility rate. Social Security and interest on the debt already cost nearly $20,000 per household this year. Fewer workers will be forced to pay for more retirees and ever-expanding federal spending and debt, making it even harder for younger Americans to buy homes and start families.

If Social Security’s insolvency coincides with a broader fiscal crisis, policymakers could lose the ability to implement gradual reforms and instead face abrupt and painful choices.

Ninth, a smaller and better-targeted Social Security program could increase incomes and strengthen the economy. By gradually shifting Social Security back toward its original purpose of preventing poverty in old age, policymakers could better target benefits toward those who need them most while reducing burdens on current and future workers.

A social insurance program should not provide the biggest benefits to Bill Gates and other wealthy seniors. According to the Penn Wharton Budget Model, a smaller and better-targeted Social Security program could increase long-run gross domestic product by 5.3%, translating into thousands of dollars in additional annual income for the typical household.

The bottom line is simple. Social Security’s $29.3 trillion shortfall, equal to $215,000 per household, will not fix itself. Lawmakers can either allow automatic benefit cuts beginning in 2032 or enact gradual, targeted reforms now that protect lower- and middle-income retirees, strengthen the economy and demonstrate fiscal responsibility before markets force more painful action.

• Rachel Greszler is a senior research fellow in economics and workforce in the Plymouth Institute for Free Enterprise at Advancing American Freedom.