Social Security’s retirement trust fund is on track to run out of money in late 2032. Once the reserves are gone, the program’s continuing income would cover about 78% of scheduled benefits, according to the program’s trustees. That points to a roughly 22% benefits cut starting then, under current law, unless Congress acts first.
The average retired worker collects a little above $2,000 a month, so a 22% shortfall amounts to roughly $450 a month, or more than $5,000 a year. Workers in their 50s and 60s have only a few years to adjust their retirement plan to compensate for this.
For years, one proposed fix has been a nonstarter: Make high earners pay the Social Security tax on more of their income. Touted again, this time a few Republicans are now willing to back it. However, one think tank that modeled the idea is not convinced.
If you have over $100,000 in savings, consult a pro about planning for the shortfall. SmartAsset offers a free service that matches you to a vetted, fiduciary advisor in under five minutes.
The tax hike proposal
In 2026, workers pay the 6.2% Social Security tax on the first $184,500 they earn. Earnings above that are not subject to the Social Security tax, though Medicare taxes still apply. Only about 6% of workers earn more than the cap in a given year.
At the last major overhaul in the early 1980s, the Social Security tax applied to earnings below the cap, which was around 90% of all eligible earnings. High earners have since outrun the cap, dropping the taxed share to roughly 83%.
Lifting or scrapping the cap would subject more earnings to the Social Security tax. There are a few state and local government workers who have their own separate pension plans, and investment income is not included in the earnings eligible for Social Security taxation.
In a New York Times op-ed, Republican Sen. Bernie Moreno and Democratic Sen. Elizabeth Warren called lifting the earnings cap a “common-sense solution.” Republican Reps. Tom Cole of Oklahoma and Lloyd Smucker of Pennsylvania have also said they would consider higher payroll taxes.
Where the fix could backfire
The Tax Foundation, a tax policy group, modeled the idea and came away skeptical. Applying the full 12.4% payroll tax to earnings above the cap would be the largest federal tax increase since 1982, the group estimates, worth about 0.83% of the economy in 2027.
The group’s model projects that fully removing the cap would raise about $3.2 trillion over a decade before accounting for economic effects, but closer to $1.5 trillion after accounting for slower growth and behavioral changes. Even then, it would not restore Social Security’s long-term solvency on its own.
The same model projects economic fallout, including 1.8 million fewer jobs and a 1.5% reduction in long-run gross domestic product. The Tax Foundation also argues that higher earners would have more incentive to shift pay into forms the payroll tax does not reach.
If the model is correct, weaker hiring and slower wage growth would reach lower-income workers earning below the cap, not just the high earners the tax aims at.
Plan for the shortfall
For people born in 1960 or later, claiming at 62 locks in a benefit worth about 70% of the full-retirement-age amount, while waiting until 70 raises it to 124% of that same amount. A future across-the-board cut would apply on top of whatever base you lock in, so claiming early to beat the shortfall could leave you worse off, not better.
That said, the right claiming age for you depends on your health, your other income and how long you expect to live.
Whether you claim early or later, it is wise to plan for the 78% scenario. Stress-test your budget against a smaller check, and build income outside Social Security. Treat a congressional fix as a welcome upside.
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