Estimates from the Congressional Budget Office have projected that by 2034, the Social Security trust fund will be exhausted. Social Security exists as an integral source of income for millions of Americans, however, costs have been accumulating faster than revenue in recent years. This is because the working population is not growing as rapidly as the aging population is.
If the trust fund does deplete, one source of revenue will be lost and subsequently, the remaining revenue sources would only be able to cover 77% of scheduled payments. As a result, benefits would need to be cut by 23% in 2035.
We are still several years away from that happening, however, and as such, lawmakers still have time to carve out a better solution. Here are some changes that could prevent benefits from being cut in the future as outlined by The Motley Fool.
Social Security changes that could help prevent benefit cuts
Social Security payroll tax
Primarily, 6.2% of wages from workers and employers is taken in the form of a dedicated payroll tax to be used to fund Social Security. However, there is also a maximum taxable earnings limit in place which means that some income is exempt from this payroll tax. For 2025, the maximum taxable earnings limit stands at $176,100 and income exceeding this figure is not taxed by Social Security.
As such, The Motley Fool says that the Social Security income tax should be applied to income above $400,000. Under the strain of shifting demographics, the program is projected to end up with a $23 trillion deficit over the upcoming 75 years. “But the deficit could be slashed by applying the payroll tax to more income. For instance, including income above $400,000 would eliminate 60% of the 75-year funding shortfall,” states the University of Maryland.
Gradually increase the Social Security payroll tax
If the Social Security payroll tax rate is gradually raised from 6.2% to 6.5% over a six year period, a portion of the long term deficit could disappear. An example from the University of Maryland explains that, “increasing the tax rate by 0.05% annually over a six-year period would eliminate 15% of the 75-year funding shortfall.”
In a broader sense, there appears to be three solutions to the programs faced by Social Security, namely, “(1) increase revenue, (2) reduce costs, or (3) some combination of the first two options,” with the aforementioned potential changes aimed at increasing revenue — as per The Motley Fool. However, “there are more subtle cuts than the 23% across-the-board reduction that would follow trust fund depletion.”
Gradually increase the full retirement age
Currently, workers become eligible to claim benefits from age 62, however this amount is reduced and they are only able to claim their full benefits upon reaching the full retirement age (FRA). After facing a gradual increase over the years, workers born in 1960 and later now have an FRA of 67. Increasing the FRA to 68, however, would help eliminate at least a portion of the long term deficit.
“For instance, increasing FRA to 68 years old by 2033, meaning it would apply to workers born in 1965 or later, would eliminate 15% of the 75-year funding shortfall,” according to the University of Maryland.
Reduce benefits for retirees with income in the top 20%
Benefit amounts differ from individual to individual because they are determined in relation to the income earned for 35 highest paid years working. This is then adjusted for inflation and converted to a monthly figure called the average indexed monthly earnings (AIME) amount. The AIME is then run through a formula which uses two bend points and the result is the primary insurance amount (PIA) for each beneficiary.
As such, a portion of the long term deficit could be reduced by adjusting the second highest bend point. According to estimates from the University of Maryland, “reducing benefits for individuals with income in the top 20% could reduce the 75-year funding deficit by 11%.”
In short, according to The Motley Fool, these four changes have the potential to “eliminate 101% of Social Security’s $23 trillion funding shortfall, which would prevent across-the-board benefit cuts in 2035.”