This explains the mechanics and the policy options; it is not financial advice.

How Social Security is funded

Social Security's retirement program — formally Old-Age and Survivors Insurance, or OASI — is paid for mainly by a payroll tax of 12.4% on wages: workers pay 6.2% and employers match it (the self-employed pay the full 12.4%). That rate has not changed in more than 40 years.

There is a ceiling, though. The tax only applies up to an annual earnings cap — the taxable maximum — which is $184,500 in 2026. Wages above that are not taxed for Social Security at all. As a result, only about 83% of all covered wages are now subject to the tax, down from 90% in 1983. When taxes collected exceed benefits paid, the surplus goes into the OASI trust fund, a Treasury-held reserve. Since 2021, that fund has been shrinking.

Why there's a shortfall

The cause is demographics. In 1960 there were more than five workers paying in for every retiree drawing out; by 2024 that ratio had fallen below three to one, and the Trustees expect it to keep dropping as the baby-boom generation retires and Americans live longer. With costs running ahead of income, the program has been drawing down the trust fund to fill the gap.

The depletion clock

If Congress does nothing, the OASI trust fund is projected to run dry around 2033, according to the Social Security Trustees as analyzed by the Committee for a Responsible Federal Budget — possibly a year earlier on some estimates.

Depletion does not mean benefits stop. By law, once the fund is empty the program can only pay out what current payroll taxes bring in — about 77% of scheduled benefits, which means an automatic, across-the-board cut of roughly 23% for every recipient, regardless of age or income. CRFB estimates a typical couple retiring at that point would lose around $16,500 a year, and the gap widens over time. The Trustees put the program's long-run shortfall, in their words, at the largest in decades.

What Congress could do

No single fix closes the gap without someone paying. The main proposals — none of which is current law — trade off who bears the cost and when. Figures below for how much of the 75-year shortfall each would close come from the Congressional Budget Office, as compiled by CRFB.

  • Raise or lift the payroll-tax cap. Because wages above $184,500 escape the tax, applying it to earnings above, say, $250,000 could close a large share of the gap — by some estimates the majority of it. The trade-off: higher earners pay more, and unless their benefits rise to match, they get a worse return on contributions.
  • Raise the tax rate. Closing the whole gap through the rate alone would mean lifting it from 12.4% to roughly 16%. This spreads the cost across all workers and employers, not just high earners.
  • Raise the full retirement age. The age for a full benefit is currently 67 for those born in 1960 or later. Pushing it toward 70 effectively trims lifetime benefits for everyone and could close roughly a third of the gap — but it hits hardest at people in physical jobs and those with shorter life expectancies.
  • Change the benefit formula. Reducing the share of earnings the formula replaces for middle- and upper-income workers, while protecting the lowest earners, could close a meaningful slice — at the cost of smaller checks than people were promised.
  • Slow the cost-of-living adjustment (COLA). Switching the annual inflation increase to a "chained" price index, which tends to read slightly lower, would close a modest share. Critics note older Americans spend more on health care, where prices rise faster than the general index.
  • Use general revenue. Funding part of the program from the broader federal budget rather than only payroll taxes is another idea — but it shifts the burden into the general budget, where it competes with everything else, and breaks the contributory model that has long given Social Security its political durability.

The cost of waiting

Lawmakers have known about this for decades; the obstacle has been political will. The longer they wait, CRFB notes, the bigger the required adjustment: acting only once the fund is empty would force a far steeper tax increase or benefit cut than phasing in changes now. For households, the practical takeaway is not panic but planning — understanding that the scheduled benefit is a projection, not a guarantee, and that the rules could change well before today's workers retire.