Why Social Security Benefits Could Be Reduced as Early as 2032

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Why Social Security Benefits Could Be Reduced as Early as 2032

Are you depending on social security for your retirement? Are you younger than retirement age and wondering if there will be any social security for you? Then this episode is for you. The clock is ticking for something to be done in regard to Social Security. There are two trusts that fund social security: the Old-Age and Survivors Insurance Trust Fund and the Disability Insurance Trust Fund. The trustees of these programs in their 2026 annual report stated that they can continue to pay 100% of scheduled social security benefits until the 4th quarter of 2032. After that, they could only pay 78% of scheduled benefits. I’m going to start by sharing some of the causes of this shortfall and then we will move to some ideas on how it could be addressed.

The cause is very simple – less revenue. This reduced revenue is due to three factors, lower fertility rates, resulting in fewer workers for the future, lower immigration, and lower tax rates. Let me address these one by one.

Lower fertility rates – families are having fewer and fewer kids. This is not just a US problem – it is now a China problem. Whereas in the 1980’s people were concerned with overpopulation and an inability to feed everyone, we now find ourselves concerned with too few people, specifically those who are willing and able to work. When you have more retirees than working in a society you have a recipe for a strained economy. We’ve seen this in Japan, and we will eventually see this in China, thanks to their one-child policy in previous decades.

Lower Immigration – You may be happy that immigration is lower. I’m not making any statements about whether we should or shouldn’t have lower immigration, but even if you are for lower immigration, it reduced the total number of workers who are paying social security taxes. If American workers were taking their place and paying social security taxes in their stead, this would not be an issue. But that has not been the case, thus far, according to the trustees.

Lower Tax Rates – Those who pay taxes on Social Security will pay lower rates in the long run, thanks to the Big Beautiful Bill making those 2017 tax cuts permanent. I think we are all thankful to be paying lower marginal rates on taxes, but there are always other costs – even to savings.

So, what do we do? Supply side economists, with whom I would probably sympathize with more than any other would advocate a few solutions.

Grow the economy by removing hurdles to business. It is possible that even with lower tax rates, and even with fewer workers, Social Security revenue overall could go up if people are making more money. That was the Reagan plan of the 1980’s and I believe it still serves as a solution today. Smart, streamlined regulation could allow more people to make more money than they do currently.

Increase the retirement age over time. People are living longer and there simply have to be adjustments to make this program more financially sustainable. Phasing the full retirement age from 67 to 70 over a period of time could be an additional lever to make the fund solvent. This is not sufficient alone, but according to the Congressional Budget Office, it could have a powerful impact.

Slow future benefit growth, particularly for high income earners. This would be less painful than cutting benefits for current retirees.

Along those lines, implement means testing for those with high incomes or significant retirement assets. I don’t like this one, because I don’t think it is good to penalize those who have saved well for retirement. However, I could concede this as a better solution than an increase in the payroll tax.

Lastly, encouraging people to stay in the workforce. Rewarding delayed retirement in some way could encourage workers to stay in the workforce longer to continue contributing to social security. Maybe there is a more dramatic scale for social security benefits from age 62 to age 70, incentivizing people to keep working longer. Many will have to work longer anyway because the cost of life has gone up so much, it will take working longer to be able to keep up.

You will hear competing solutions in the upcoming Presidential campaign because this issue will need to be addressed under their watch. It is political suicide to just let benefits be cut to 3/4 of their current levels, so something else will have to be done. That being said, it is possible that the Old Age and Survivor’s Insurance Trust could be combined with the Disability Trust and it gives the combines funds an extended life of a couple of years before benefits are reduced. Kicking the can down the road is a frequent strategy when it comes to difficult and unpopular decisions, and that could be the case this time around as well.

Perhaps you’ve been kicking the can down the road when it comes to changing banks. Perhaps you feel like you are not getting the service where you bank, but it just seems like too much trouble to change everything. At Foundation Bank and MBC, we have a switch to service kit that can help make that change a little less daunting. Hard things are usually worth it in the end. Start your financial conversation today by visiting foundationbank.org. We hope you’ll subscribe to this podcast to it in your favorite podcast app and share it on social media. Until our next episode, God bless you.

-President Chad P. Wilson, CFP

Today’s episode of “Money Matters” was written and recorded by President Chad P. Wilson of Foundation Bank/McKenzie Banking Company on October 13, 2026. This episode does not constitute financial advice. Please consult a financial professional to discuss your specific needs. Any rates mentioned are subject to change and are accurate as of the recording date. Foundation Bank/MBC is an Equal Housing Lender, Member FDIC.