Social Security benefit cuts of up to 22% could face millions of Americans in the early 2030s unless Congress acts, despite a 3.6% cost-of-living increase due to take effect next year.
The Social Security Administration said the 2027 adjustment would increase payments for nearly 72 million beneficiaries from January. About 7.3 million people receiving Supplemental Security Income will receive the higher rate from December 31 2026, with the overall increase reaching 76 million Americans, including people receiving both types of support.
The average retirement payment is expected to rise by about $75 a month, from $2,095 to $2,170. The annual increase is intended to help benefits keep pace with inflation and is calculated using changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers.
However, some retirees and advocates have argued that the increase will not fully meet rising costs, while the programme’s longer-term finances remain under growing pressure.
Social Security trust fund faces 2032 shortfall
The Old-Age and Survivors Insurance Trust Fund, which finances retirement and survivors’ benefits, is projected to run out of reserves in the fourth quarter of 2032, according to the 2026 Social Security trustees report.
Once its reserves are depleted, incoming revenue is expected to cover only 78% of scheduled payments. That would amount to an automatic 22% reduction if lawmakers had not changed the system’s financing.
The proportion covered by incoming revenue is projected to fall further, to 62% by 2100, under the trustees’ forecasts. The depletion of the fund would not stop payroll tax collection or benefit payments, but the programme would only be able to distribute what its revenues could support.
The combined retirement, survivors’ and disability funds are projected to run out of reserves in the third quarter of 2034. At that point, revenue would cover an estimated 83% of scheduled benefits, falling to 65% by 2100.
Social Security Commissioner Frank Bisignano has said the programme will continue for decades, despite the funding projections. Speaking before the 2027 adjustment was announced, he said: “This is a long journey. It’s 90 years old, and it’ll be around for another 90 years. The president has promised to protect and preserve and that’s what we’re doing.”
Mr Bisignano, who is also chief executive of the Internal Revenue Service, has been overseeing changes to the agency’s operations. He said officials were addressing erroneous records, telling CNBC: “When you have 30 million records that are wrong, [the job] is fix the place.”
He said about 10% of those records had been corrected, but declined to discuss possible changes to benefits or the taxes that fund Social Security.
Higher payroll taxes among possible solutions
Congress could address the funding gap through increased revenue, changes to benefits or a combination of reforms. The trustees’ report does not recommend a specific approach.
One option would be to increase the payroll tax, which currently stands at 12.4% of covered earnings, divided equally between employees and employers. The tax applies up to an annual earnings limit that will rise from $184,500 in 2026 to $192,300 in 2027.
An estimate from conservative advocacy group Advancing American Freedom said the combined payroll tax rate would need to reach 17.3% in 2034 to maintain scheduled benefits through tax increases alone. That would represent an increase of about 40% from the current rate.
The group estimated that raising the rate immediately to 16.65%—a 34% increase—would prevent benefit reductions. It also put Social Security’s long-term funding shortfall at $29.3 trillion, or about $215,000 per household.
“Social Security’s $29.3 trillion shortfall ($215,000 per household) won’t fix itself,” said Rachel Greszler, a senior research fellow at Advancing American Freedom. “Lawmakers can either allow automatic 22% benefit cuts in 2032 or enact gradual, targeted reforms now to protect lower- and middle-income retirees, strengthen the economy, and demonstrate fiscal fortitude before markets force abrupt action.”
