Social Security's Shortfall Now Looks Smaller, But Your Check Could Still Shrink

Pressure is on Congress to find a solution to the Social Security program's looming financial shortfall and preserve senior benefits. One proposed solution involves changing the Social Security payroll tax to help fill in that gap. A Congressional Budget Office (CBO) estimate projects the OASI deficit to be a relatively small 4.55% of taxable payroll shortfall, but the Cato Institute is warning that the projection might be too optimistic, and the actual shortfall might be more significant.

Here's what you should know about the Social Security shortfall and how your benefits might be impacted.

The Social Security Trustees' current projections

Several projections indicate the Social Security program is in financial trouble. The Social Security Trustees' 2026 report projects that the Old-Age and Survivors Insurance (OASI) trust fund may be depleted by the fourth quarter of 2032, which is one quarter earlier than the 2025 report projected. If the OASI trust fund becomes depleted, the program's income may only be sufficient to pay 78% of total scheduled benefits, and an automated 22% benefits reduction may be applied.

The CBO's September forecast includes a projection that the OASI faces a shortfall of 4.55% of its taxable payroll. That matches the Social Security Administration's (SSA) projection earlier this year indicating that the program faces a shortfall of 4.55% of taxable payroll.

Why the figures may be deceiving

Several factors are potentially making the projections deceiving. The Cato Institute, a libertarian public policy research organization, has analyzed these figures and is warning that the 4.55% taxable payroll estimate may be too optimistic. Though the SSA and CBO projections match, the CBO has previously projected a larger long-term shortfall than the SSA.

The Cato Institute's analysis found that the decline in the CBO's estimate reflects the impact of higher projected interest rates. Those higher interest rates change the future shortfall, and the resulting figure seems to suggest that the shortfall has shrunken. In fact, that gap hasn't actually become any smaller.

The assumption driving the projections

According to the Cato Institute, Social Security's long-term shortfall may be even worse than projected because of fertility rates. The 2025 Social Security Trustees' report estimated that Social Security faces a 75-year funding shortfall of approximately $27 trillion in today's terms.

"But those projections rely on unusually optimistic assumptions about future US fertility rates," the Cato Institute writes. "The Trustees are likely understating Social Security's insolvency problem by assuming Americans will start having far more children than current trends suggest."

How different fertility rates affect projections

According to the Cato Institute, if fertility trends follow the CBO's projections, the Social Security deficit could reach at least $30 trillion. It's possible that by using unusually optimistic fertility rate projections, the SSA might be underestimating the gap in Social Security's funding by at least $3 trillion in today's terms.

Even the Census's and CBO's fertility projections might be optimistic, cautions the Cato Institute. The estimates both assume that long-term fertility rates plateau at 1.53 to 1.56, but fertility has declined in the U.S. for two decades. There's no evidence that the decline may stop soon.

What the projections mean for changes to Social Security payroll taxes

The 4.55% taxable payroll gap holds meaning if Congress decides to address the Social Security funding shortfall by implementing a payroll tax increase. In that instance, Congress would need to raise the current 12.4% Social Security payroll tax rate by 4.55 percentage points to close that gap. The resulting payroll tax would be 16.95%.

The Cato Institute has calculated that if the tax is increased to 16.95%, an individual earning about $60,000 per year would pay $2,730 more in payroll taxes, bringing their total tax burden to $10,170. If the individual is traditionally employed, their employer would be responsible for half of the Social Security tax.

Additional proposed solutions to Social Security

Raising Social Security payroll taxes is just one proposed reform to address the program's funding gap. Congress is also exploring options like raising the full retirement age at which point individuals may claim full Social Security benefits. Currently, the full retirement age is 67 for individuals born in 1960 or later, and proposals have suggested raising that age to 70.

Instead of raising taxes for everyone, Congress also has the option to remove the payroll deduction cap. In 2026, Social Security taxes only apply to the first $184,500 an individual earns in the year. That means that high earners whose incomes exceed that amount only pay taxes on part of their income. Removing the cap could allow the Social Security program to receive substantial additional revenue.

Bottom line

The conflicting projections bring mixed information about the program's financial shortfall, but all of the projections agree that a shortfall is imminent. If Social Security is only able to pay 78% of scheduled benefits and those benefits are reduced by 22%, the average married couple might lose about $10,560 per year in benefits, according to the Bipartisan Policy Center Action. Regardless of which projection proves right, delaying action on solving the funding issue only narrows the options that lawmakers may ultimately have left.

This may be a good time to stress-test your retirement plan to see how you could get by on reduced benefits, just in case a reduction actually happens.

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