Fixing Social Security's Reserve Problem Might Be Easier Than You Thought

It's no secret that the Social Security program is standing on rocky ground. No, it's not going to run out of money and stop paying out benefits to recipients. But if nothing is done to shore up its funding balance, those benefits could be cut by roughly 20% within the next 10 years. SSA manages a raft of support programs for Americans, including SSI payments that help provide for some of the most vulnerable people in the country. As a result, Social Security is a balancing act that's far more complex than the monthly expenses in a typical household budget. Even so, resolving the issues that threaten the various Social Security trust funds' long-term solvency really boils down to a few fairly basic approaches.

Since 2010, the Social Security Administration has been collecting less in tax revenue than it spends on monthly benefits. With Baby Boomers arriving at retirement age in increasingly large numbers, the balance between Social Security recipients and current American taxpayers is skewed, shifting from around three-to-one to two-to-one in the near future. This is the result of both a large population growth during the Baby Boom era and an increasingly slow one after it. But lamenting the country's demographics won't solve anything, and there are some things that Congress can do to support the needs of people in retirement today as well as those in the workforce who will look to draw benefits in the future. Essentially, this boils down to either adding resources to the trust fund or reducing the amount it pays out — in much the same way as a consumer budget fix might occur.

First, the federal government can explore ways to increase revenue sources that will expand the amount of income the trust fund takes in. Adding to its funding sources today can make a big difference in pushing out the insolvency date or avoiding it altogether. In much the same way that acting early helps an investor take advantage of compound interest to grow their portfolio with greater speed, shoring up this deficit sooner rather than later will deliver a larger overall impact. Even if Congress doesn't entirely cover the shortfall with new revenue sourcing, adding to the pool of funds will push out the insolvency date, perhaps even significantly. A temporary win like this is still a big deal, because it allows Congress to explore additional options to maintain the trust fund rather than simply throwing in the towel on a crucial program.

For one thing, eliminating the income cap would go a long way to expanding the trust fund's resources. Every dollar a taxpayer earned above $168,600 in 2024 was exempt from FICA contributions. With some of the best paid CEOs in America raking in hundreds of millions, eliminating the cap on the lion's share of these and other earnings figures could be a real shot in the arm for Social Security's future. Moving the cap or instituting what economists have dubbed the "donut hole" approach (keeping the cap the same but reapplying FICA obligations on earnings above $400,000) have also been floated as potential avenues of expansion. Alternatively, simply moving the cap to $250,000 would raise an estimated $1 trillion over the next ten years.

There is a real viability problem in expanding tax obligations that can't be ignored. Lobbyists exert a powerful influence on the lawmaking process, and those who earn the highest salaries in America aren't likely to get excited about new policies that cost them more. With that being said, it's important to note that Social Security is a project that was designed to provide for those who aren't a part of the financial upper class. While everyone benefits some from Social Security coverage, it's those who earned the lowest incomes throughout their working life who see the greatest percentage-based benefit in an attempt to stabilize their lifestyle the most. That's by design and not a flaw in the system.

Even so, it would be irresponsible to explore only some of the potential solution sets for the problems Social Security faces today. Reducing payouts the program makes can also help stave off insolvency within its trust fund reservoirs. Eliminating or reducing spousal benefits and other dependent support systems is one approach that's been raised, while changing the calculation parameters serves as another. Currently, Social Security benefits are based on the highest 35 years of earnings. Shifting this to 40 would encourage people to stay in the workforce longer — lining up with longer life expectancy figures than in the past — or leave the workforce as planned but with a smaller benefit. The federal government has changed full retirement age in the past as well, and shifting it back a year or more again would also cut benefit rates substantially.