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Americans earn their Social Security through a lifetime of work. Social Security provides benefits to retired workers and their families, to the spouses and dependents of workers who have died, and to workers who have experienced a severe disability and their families.
Social Security is primarily funded by dedicated payroll taxes paid by almost all U.S. workers. Before 2021, the program collected more revenue than it paid out in benefits, building up a surplus in the Social Security trust funds. Today, with the boomers retiring and the beneficiary population growing, the surplus is being used to supplement incoming payroll tax income and pay benefits in full, but eventually, the trust funds will face a shortfall — in less than a decade, according to the latest estimates.
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If Congress doesn’t act to cover the shortfall, the money flowing into Social Security would only be enough to fund about 80 percent of benefits. To avert that, Congress would have to cut benefits, raise payroll taxes, come up with new funding sources or craft a plan that combines all three approaches.
Congress must act to make sure Social Security can pay the full benefits Americans have earned and determine a path forward to address the program’s long-term fiscal challenges. Any proposed solution could contain many modifications to the program. Here is an overview of commonly discussed changes lawmakers might consider as part of a larger package.
Eliminate or raise the wage cap
Social Security taxes are paid on only the first $176,100 of work earnings in 2025. Earnings above that threshold, called the “taxable maximum,” are not subject to the Social Security payroll tax. The taxable maximum is adjusted annually based on overall wage growth in the economy.
Various proposals would help close the trust fund shortfall by either removing this cap altogether or setting it higher to capture a larger share of wage growth above the cap. Most of these proposals would increase benefits to reflect higher earners’ increased contributions but at a lower rate of return.
Increase the payroll tax rate
Employees and employers each pay a 6.2 percent payroll tax on the first $176,100 of annual wages. This is part of the FICA tax on your paycheck. (Self-employed people pay both shares, adding up to 12.4 percent of their net income.)
One way to help close the Social Security funding gap would be to increase the payroll tax rate. Various proposals would phase in this increase over time, raising both the employer and employee share of the payroll tax.
Use other funding
By law, Social Security is a self-financed program paid for by a 6.2 percent payroll tax on both employees and employers (12.4 percent for the self-employed). Congress does not appropriate funds annually to pay benefits, and the general U.S. revenues are not used.
Congress could change that to reduce or eliminate the Social Security shortfall. For example:
- Congress could use money from the U.S. general fund to help pay benefits.
- Congress could tax other forms of income, such as investment income, to supplement the payroll tax base.
- Congress could create a new fund to invest in the private market and use the returns to help pay benefits over time. Lawmakers could borrow initial deposits, which could be paid back at a later date.
Raise the full retirement age
Many Americans are living and working longer. One option would be to raise the full retirement age — which is 67 for people born in 1960 and thereafter — to 68, 69 or 70.
Most proposals would phase in this change over time to protect those currently at or near retirement from any increase. The minimum claiming age of 62 would be preserved, which is important for those who do arduous work or have health or caregiving challenges.
However, every one-year increase in the full retirement age reduces benefits for those claiming at 62 by roughly 6 percent. Additionally, because of the long phase-in time, the program would likely not see savings for several decades.
Reduce benefits for people with higher incomes
The way Social Security is set up, people who had lower wages throughout their working lives receive lower benefits, but those benefits replace a larger share of their work income than for higher earners. Some proposals would change the benefit formula to return even less money, proportionally, to those who earned more during their lifetimes.
Another approach would be some form of means testing — reducing benefits for people who have greater income or assets in retirement and, in theory, need Social Security less.
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