This is a topic that will receive a lot more attention in the coming years. Let’s address the elephant in the room: Social Security is not going bankrupt. Social Security is not a Ponzi scheme; it’s basically money in and money out, a-pay-as-you-go system. If Congress does not make changes either in the funding mechanisms or benefit structure, benefits will be cut across the board by 22% in 2032. Congress has kicked this can down the road for 40 years.
The government created the perception that Social Security was placed “in” the general fund when it adopted the unified federal budget for fiscal year 1969. That accounting change reported Social Security’s dedicated payroll tax revenue alongside all other federal income in a single bottom-line figure, making the overall deficit look smaller. Social Security’s money was never physically merged with general tax revenue, though – the program’s trust funds remain legally separate accounts backed by their own funding stream and governed by their own investment rules. Congress changed that accounting procedure in 1983 because Social Security is an “off budget” item. In reality, Social Security has nothing to do with regular corporate and individual taxation and the general fund income; it’s self-funded and separate.
Social Security does not contribute to the federal deficit, yet
There was a Social Security trust fund created in the 1980’s because the surplus of funds generated by raising the Social Security tax rate to 6.2 % could not sit idle, and those funds were invested in U.S. Treasuries. The Treasury spent that money years ago. Now the trust fund is redeeming the U.S. Treasuries to pay full benefits. So, because the government spent the cash, it now has to borrow money from the public to pay for general expenses, not Social Security benefits, because Social Security is paying its own benefits by redeeming its own money in the form of U.S. Treasuries. The logic behind this thinking is that the government is converting “intragovernmental debt” to public debt which increases the deficit. Because the government now has to borrow money to pay general expenses because Social Security is redeeming their U.S. Treasuries, the perception is Social Security adds to the federal deficit. Social Security spending will technically not impact the federal deficit directly until the trust fund is fully depleted by redeeming all of the U.S. Treasuries and general operating funds are needed to pay Social Security benefits.
The 2026 OASDI Trustees Report was issued on June 9, 2026, for the period ended December 31, 2025, by the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds. At the end of 2025, the trust funds held roughly $2.56 trillion in U.S. Treasuries which represents 6.5% of the total $39.2 trillion. Based on their projections, the trust fund is expected to be depleted in 2032, and benefits will be cut 22% across the board unless measures are taken to prevent this.
There are many ideas presented to resolve the projected cut in benefits. The biggest one is to eliminate the 12.4% payroll tax rate cap on Social Security earnings. In 2026, anyone earning up to $184,500 (W-2 or Self-Employment Income) pays the full 6.2%. Only about 6% of covered workers exceed that limit; 94% don’t. Medicare has no earnings cap. So, if you have income on a W-2 or Self-Employment Income on a Schedule C in excess of $184,500, you stop paying Social Security tax into the system. Estimates according to the Chief Actuary of the Social Security Administration, by eliminating the 12.4% payroll tax cap of $184,500, would provide 67% of the funding gap if benefit credit is not given for earnings above the current law taxable minimum. If higher earners receive benefit credit, the gap is closed by 48%.
Other ideas receiving current attention are:
- Increase the payroll tax from 12.4%
- Change full retirement age
- Modify the benefit formula calculation
- Change COLA indexing
- Means testing
- Raise early eligibility from 62
- Increasing the number of working years from 35 to 40 years
- Maximizing benefit levels to $50,000 for singles and $100,000 for married couples
Below is the report issued by the Office of the Chief Actuary of Social Security on January 13, 2026, based on the 2025 Trustees Report to change Social Security. It is a 25-page report listing approximately 140 different provisions that could be enacted to close the gap.
Long Range Solvency Provisions
It will be interesting to watch what happens in the coming years. Reading the tea leaves, in my humble opinion, we are moving toward privatization.
“Remember, take the wrong benefit at the wrong time, it’s always smaller and forever.” For more information and timely tips, follow Tom Hager here on LinkedIn.
Social Security does not contribute to the federal deficit, yet
There was a Social Security trust fund created in the 1980’s because the surplus of funds generated by raising the Social Security tax rate to 6.2 % could not sit idle, and those funds were invested in U.S. Treasuries. The Treasury spent that money years ago. Now the trust fund is redeeming the U.S. Treasuries to pay full benefits. So, because the government spent the cash, it now has to borrow money from the public to pay for general expenses, not Social Security benefits, because Social Security is paying its own benefits by redeeming its own money in the form of U.S. Treasuries. The logic behind this thinking is that the government is converting “intragovernmental debt” to public debt which increases the deficit. Because the government now has to borrow money to pay general expenses because Social Security is redeeming their U.S. Treasuries, the perception is Social Security adds to the federal deficit. Social Security spending will technically not impact the federal deficit directly until the trust fund is fully depleted by redeeming all of the U.S. Treasuries and general operating funds are needed to pay Social Security benefits.
The 2026 OASDI Trustees Report was issued on June 9, 2026, for the period ended December 31, 2025, by the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds. At the end of 2025, the trust funds held roughly $2.56 trillion in U.S. Treasuries which represents 6.5% of the total $39.2 trillion. Based on their projections, the trust fund is expected to be depleted in 2032, and benefits will be cut 22% across the board unless measures are taken to prevent this.
There are many ideas presented to resolve the projected cut in benefits. The biggest one is to eliminate the 12.4% payroll tax rate cap on Social Security earnings. In 2026, anyone earning up to $184,500 (W-2 or Self-Employment Income) pays the full 6.2%. Only about 6% of covered workers exceed that limit; 94% don’t. Medicare has no earnings cap. So, if you have income on a W-2 or Self-Employment Income on a Schedule C in excess of $184,500, you stop paying Social Security tax into the system. Estimates according to the Chief Actuary of the Social Security Administration, by eliminating the 12.4% payroll tax cap of $184,500, would provide 67% of the funding gap if benefit credit is not given for earnings above the current law taxable minimum. If higher earners receive benefit credit, the gap is closed by 48%.
Other ideas receiving current attention are:
Below is the report issued by the Office of the Chief Actuary of Social Security on January 13, 2026, based on the 2025 Trustees Report to change Social Security. It is a 25-page report listing approximately 140 different provisions that could be enacted to close the gap.
Long Range Solvency Provisions
It will be interesting to watch what happens in the coming years. Reading the tea leaves, in my humble opinion, we are moving toward privatization.
“Remember, take the wrong benefit at the wrong time, it’s always smaller and forever.” For more information and timely tips, follow Tom Hager here on LinkedIn.