Experts believe Washington 'must break its promise on Social Security' to protect it from 'imminent insolvency'

So, how dire is the state of Social Security? Insolvency doesn’t mean your benefits will disappear altogether, it simply means the program’s trust funds have been depleted. But since the program is paid for with ongoing tax income, Social Security will still exist — there just won’t be enough tax dollars coming in to cover the current benefits going out.

In other words, older Americans would receive a reduced benefit. The trustees report estimates that, unless something changes, retirees will receive 77% of their full benefit when the retirement trust fund is depleted (1). Those collecting disability benefits will receive 81% of their full benefit.

There are a number of reforms that could help fill those coffers, but the clock is ticking. Many of these reforms are unpopular, such as raising the retirement age, raising payroll taxes, raising the payroll tax cap and using price indexing instead of wage indexing to calculate benefits.

But certain reforms — such as raising the full retirement age (FRA) or altering benefit formulas — would have financial consequences for younger workers and future retirees.

For example, one of the simplest reforms would be to increase payroll tax by about three to four percentage points from the current rate of 12.4%, which would “go far toward eliminating the long-term shortfall,” according to Bloomberg’s editorial board (3). However, Americans in the lowest income bracket would be hit hardest, reducing their take-home pay at a time when many already feel squeezed.

Another one of these potential reforms would be raising the FRA from 67 to 69, which the Bloomberg editors say would “close about a third of the shortfall over 75 years.” Americans would work longer before retiring, pay more taxes during that time (boosting program revenue) and claim their benefit later (receiving monthly checks for fewer years).

Once again, this could hit lower-income workers hardest, since they tend to have shorter lifespans than wealthy Americans (7). It could also impact workers in physically demanding jobs who may not be able to keep working, yet don’t qualify for disability.

Other alternatives include increasing the maximum amount of earnings subject to the tax — for 2026, it’s capped at $184,500 (8) — and doing a means-testing for higher earners. Blending “milder variants” of all of these reforms “would make each change less disruptive and, with luck, more feasible,” according to the Bloomberg editors.

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Taking charge of your retirement income

These potential reforms could have an impact on both your paycheck or future retirement plans. But, without reform, you could see a reduction in your future Social Security retirement benefit. To date, no legislation has been enacted to address the funding shortfall.

No matter what happens, it’s a good time to take charge of your retirement savings and plan for a range of outcomes, including a smaller Social Security check. For example, the average Social Security check is about $2,002.39 (9), which means a 77% cut would leave you with a $1,542 check.

From the get-go, Social Security was designed to supplement — not replace — individual retirement savings, and it was conceived at a time when American life expectancies were much shorter.

“Social Security was never meant to fund 30 years of retirement, so it makes sense that the full retirement age increases with time,” Eric Ludwig, program director for the Retirement Income Certified Professional Program at the American College of Financial Services, told Kiplinger (10).

But Ludwig also notes that this would unfairly impact Americans working in physically taxing jobs. If they’re physically unable to keep working an extra two years, it could mean adjusting their retirement plans or finding another way to fund the shortfall.

So, amid all this Social Security uncertainty, you may want to focus on your own savings instead: maximizing tax-advantaged accounts such as 401(k)s and IRAs, using catch-up contributions if you’re over 50, and building a diverse investment portfolio.

It also means saving consistently — and as early as possible, so you can benefit from the power of compounding. You may want to consult with a financial advisor to model various scenarios.

While workers who’ve paid into the program can hope for the best, it also pays off to prepare for a variety of outcomes, increase personal savings where possible and be realistic about how tomorrow’s benefits may differ from today’s promises.