More than one in five Americans are unaware that Social Security benefits could be cut by about 22% within six years, as the programme’s retirement trust fund is forecast to run out of reserves in late 2032.
The 2026 Social Security Trustees Report says payroll taxes would then cover only 78% of scheduled payments. The reduction would apply to all recipients, including people already drawing benefits, unless Congress acts.
Social Security provides monthly payments to more than 71 million people and accounts for the majority of income for 43% of older Americans, according to AARP. A 22% reduction could leave a typical two-income couple retiring in 2033 about $16,900 a year worse off, estimates the Committee for a Responsible Federal Budget.
Martin Mulyadi, an accounting professor at Shenandoah University, said describing the situation as insolvency was potentially misleading because payroll taxes would continue to be collected after 2032.
“Social Security is not running out of money in 2032. It is running out of savings,” he said.
The trustees estimate the programme’s 75-year funding shortfall at $29.3 trillion in present value, up from $25.1 trillion in the previous report. Michael Liner, a disability attorney, said the reduction would happen automatically if lawmakers failed to intervene.
“No vote, no warning, just plain math,” he said, describing the potential cut as “the difference between getting by or not” for many retirees.
Why a 22% Social Security cut is being projected
Social Security is funded mainly through payroll taxes. For decades, the programme collected more than it paid out, allowing reserves to build in two trust funds: one covering retirement and survivors’ benefits, and another supporting disability payments.
That position changed in 2021, when the retirement fund’s costs began to exceed its total income. Reserves have since been used to cover the difference. In 2025, the programme received about $1.45 trillion and paid out roughly $1.61 trillion, Mulyadi said.
The disability fund is in stronger condition and is not projected to run out during the next 75 years. Combining the two funds would extend the life of the reserves until 2034, according to the Committee for a Responsible Federal Budget, but would require a change in law and would not eliminate the underlying deficit.
Demographic changes are adding to the pressure. Social Security now serves roughly twice as many beneficiaries as it did in 1980, while lower birth rates mean fewer workers are paying into the system. Retirees are also collecting benefits for longer, and declining immigration has reduced the pool of workers contributing through payroll taxes.
The distribution of earnings is another factor. Payroll taxes apply only up to an annual income limit, while the earnings of higher-paid workers have grown faster than those of other employees. Research from the Roosevelt Institute found that the share of wages subject to the tax had fallen from almost 87% in 1984 to about 83%.
Elizabeth Wilkins, the institute’s chief executive, said Congress had not updated Social Security to reflect the current economy.
“Too much income now flows to the top, where it escapes Social Security taxation,” she said.
What Congress could do to avoid the benefit reduction
Congress last addressed a comparable crisis in 1983, when legislation gradually increased the full retirement age from 65 to 67 and made some Social Security benefits subject to federal income tax.
Possible measures now include raising the full retirement age to 69, increasing the payroll tax rate from 6.2% to 7.2% for both employees and employers, and lifting the cap on taxable earnings. The cap is set at $192,300 for 2027, with higher levels such as $250,000 or $400,000 among the options that have been modelled.
Lawmakers could also use a different inflation measure to calculate annual cost-of-living increases, which would slow the growth of benefits.
“Each option has trade-offs, and the longer Congress waits, the larger each adjustment has to be,” Mulyadi said.
AARP said the shortfall could be addressed without reducing payments. Nancy LeaMond, the organisation’s executive vice-president for advocacy and engagement, said Congress had “hundreds of tools” available to strengthen Social Security.
“This is absolutely something that can be fixed,” she said.
Treasury Secretary Scott Bessent argued in June that economic growth could strengthen the programme without cuts, while debate continues over how much additional funding should come from higher earners.
How households can prepare for a possible cut
Mulyadi advised people approaching retirement to plan using a range of possible outcomes rather than relying on their current benefit projection.
He recommended checking the estimate in an individual Social Security account and testing whether a retirement budget would still work if it delivered only 75% to 80% of the projected amount.
If it would not, households could still consider saving more, working for longer or changing when they claim benefits. Congress has about six years to decide how to address the projected shortfall.
