You’ve probably heard by now that America’s Social Security program faces significant financial challenges. While policymakers have warned for decades that the program is on an unsustainable financial path, the consequences are expected to become much more tangible over the next 6 years.
In its latest report,1 the Social Security Trustees warned that Social Security’s primary trust fund is projected to face a funding shortfall by the fourth quarter of 2032. Under current law, continuing program income would then pay only about 78% of scheduled retirement and survivor benefits, implying an automatic benefit reduction of 22%—estimated at about $10,560 per year for the average married couple—if Congress does not act.2
Demographic trends can largely explain the program’s shortfall. People are living longer yet having fewer children, creating a rupture in Social Security’s foundational premise that young, healthy workers will earn enough to provide sustained benefits to disabled people and retirees and their families.
The long-term future of Social Security could depend on what Congress does, and how quickly. The House and the Senate have introduced 2 bipartisan bills so far in 2026 aimed at changing the process by which a solution is discussed, determined, and enacted.3 Other legislative proposals focus on specific policy changes, from asking higher earners to pay more to changing how benefits are calculated to bringing more workers into the system. Some of these changes would increase benefits for certain groups, and others would reduce benefits.
Whether you’re years away from retirement or starting to plan seriously for it, there are several big decisions to weigh—among them are when to stop working, when to claim Social Security benefits, how much to save, and how to turn your portfolio into sustainable retirement income. All of these questions intersect with your expected Social Security benefits.
For the average worker, Social Security might replace between 35% and 40% of annual preretirement earnings,4, 5 making it a significant form of “guaranteed” income. That’s why it’s important for pre-retirees to understand the range of changes being discussed and consider whether their retirement plan can withstand a smaller Social Security benefit if a resolution isn’t reached.
3 approaches Congress is considering to change Social Security
Most Social Security reform proposals fall into 3 broad categories: changing benefits, raising revenue through taxes, and expanding who participates in the program. Different proposals combine these approaches in various ways.
1. Adjust who receives benefits and when
Changing benefits is the one major lever available to lawmakers, but proposals vary considerably.
Some would reduce future benefits, particularly for higher earners or younger workers. One frequently discussed option is gradually increasing Social Security's full retirement age. Under current law, the full retirement age is 67 for people born in 1960 or later, but some proposals suggest increasing that age over time. Good to know: The change in retirement age to 67 from 65 was initiated in 1983 and phased in over decades.
Some such proposals suggest gradually raising the full retirement age to 70 for the highest earners. Others suggest eventually eliminating benefits for dependent retiree spouses and benefits for dependent children of retirees.6
Yet other plans focus instead on expanding benefits—or combine reductions in benefits for some groups with expansion of benefits for other groups—and use different levers to address the funding shortfall.
For a pre-retiree, these distinctions matter and could affect when you choose to leave work and how much you expect to receive. Changes to survivor benefits, still another proposed adjustment, could be especially important for married couples when one spouse has a substantially higher Social Security benefit.7
2. Increase taxes by removing the payroll deduction cap
Though raising taxes is historically unpopular, it’s another lever lawmakers could use to strengthen Social Security's finances.
Many proposals call for lifting the payroll tax wage base. In 2026, Social Security payroll taxes apply on earnings up to $184,500. An employee pays 6.2% on covered earnings up to that amount, and their employer pays another 6.2% (self-employed workers pay both halves). Earnings above $184,500 are not subject to the Social Security portion of FICA. Social Security benefits also do not increase when accounting for incomes beyond this limit.
That leaves substantial potential tax revenue from the nation’s highest earners on the table. Some proposals have focused on eliminating or phasing out the payroll tax wage base, which would subject more earnings to Social Security payroll taxes. Various others have suggested maintaining the existing taxable wage base but reimposing the Social Security portion of the payroll tax when earnings exceed $250,000, or they propose bringing in more revenue by increasing the Social Security portion of the payroll tax rate to 12.6% from 12.4%.
Any eventual solution could use one or more of these ideas.
3. Bring more workers into the system
Social Security depends heavily on payroll taxes from current workers to fund benefits for current retirees. But not all people who work in the US contribute to Social Security. About 6.3 million state and local government employees do not pay into the system or receive benefits, often because they are covered by alternative public retirement plans.
There are multiple longstanding proposals to expand the Social Security participant pool to include newly hired state and local workers, but they might only modestly improve solvency. Some estimates show that including state and local government employees in Social Security would close 4% of the program’s long-range shortfall, according to the Congressional Research Service, a nonpartisan research agency that is part of the Library of Congress.8
Immigration is another area often discussed in debates over Social Security’s finances. Some proposals have suggested increasing the number of legal US workers who pay into Social Security and receive benefits and restricting Social Security tax exemptions for some foreign workers.9
How a Social Security shortfall could impact a retirement plan
Strengthening Social Security appears to be a priority for lawmakers. Historically, Congress has always achieved compromises to continue funding Social Security. These compromises usually don’t affect current benefit recipients and they result in small changes phased in over the course of years. However, it can take time to enact such broad legislation, particularly amid periods of deep political polarization.
Suppose Congress does not act on Social Security by 2032, and benefits are cut by an estimated 22%. Let’s see how that might impact a hypothetical average married couple, who could receive $10,560 less per year in Social Security than expected. Without this guaranteed income, they could be left to rely more heavily on their savings—what does that mean for the longevity of their nest egg?
Assume the hypothetical couple’s $500,000 investment portfolio is their only other source of retirement income. To make up the $10,560 annual Social Security shortfall, they would need to withdraw about 2% more from their portfolio per year than initially planned ($10,560 / $500,000 = 2.11%).
A $10,560 annual shortfall from a 22% reduction assumes a total household income from Social Security benefits of $48,409 annually, or roughly $2,000 per person for our hypothetical married couple.
Below we show the impact of the benefit cut over 10 years, estimating the additional withdrawals the hypothetical retired couple would need to take from their investment account to make up for the shortfall. The analysis below does not include other potential withdrawals from the portfolio for their retirement spending needs.
Portfolio returns without benefit cut
| Year | Starting balance | +7% return | Additional withdrawal | Ending balance |
| 1 | $500,000.00 | $535,000.00 | 0 | $535,000.00 |
| 2 | $535,000.00 | $572,450.00 | 0 | $572,450.00 |
| 3 | $572,450.00 | $612,521.50 | 0 | $612,521.50 |
| 4 | $612,521.50 | $655,398.01 | 0 | $655,398.01 |
| 5 | $655,398.01 | $701,275.87 | 0 | $701,275.87 |
| 6 | $701,275.87 | $750,365.18 | 0 | $750,365.18 |
| 7 | $750,365.18 | $802,890.74 | 0 | $802,890.74 |
| 8 | $802,890.74 | $859,093.09 | 0 | $859,093.09 |
| 9 | $859,093.09 | $919,229.61 | 0 | $919,229.61 |
| 10 | $919,229.61 | $983,575.68 | 0 | $983,575.68 |
Portfolio returns with benefit cut of 22%
| Year | Starting balance | +7% return | Additional withdrawal | Ending balance |
| 1 | $500,000.00 | $535,000.00 | $10,560.00 | $524,440.00 |
| 2 | $524,440.00 | $561,150.80 | $10,824.00 | $550,326.80 |
| 3 | $550,326.80 | $588,849.68 | $11,094.60 | $577,755.08 |
| 4 | $577,755.08 | $618,197.93 | $11,371.97 | $606,825.97 |
| 5 | $606,825.97 | $649,303.78 | $11,656.26 | $637,647.52 |
| 6 | $637,647.52 | $682,282.85 | $11,947.67 | $670,335.18 |
| 7 | $670,335.18 | $717,258.64 | $12,246.36 | $705,012.28 |
| 8 | $705,012.28 | $754,363.13 | $12,552.52 | $741,810.61 |
| 9 | $741,810.61 | $793,737.36 | $12,866.33 | $780,871.02 |
| 10 | $780,871.02 | $835,531.99 | $13,187.99 | $822,344.00 |
Chart 1 assumes a $500,000 portfolio earns a 7% annual return over 10 years. Chart 2 assumes annual withdrawals to offset a 22% reduction in Social Security benefits, starting at $10,560 in year one and increasing 2.5% annually.
There are 2 main ways this higher withdrawal rate impacts their portfolio:
1. The impact of the withdrawals themselves: More money is coming out of the portfolio each year.
To ensure they retain purchasing power, the couple would need to increase their withdrawal each year to account for inflation, which we’ll assume is 2.5% annually.
So, in year 2, they would need to withdraw $10,824; in year 3, they would need to withdraw $11,095; and so on. Over 10 years, the couple would withdraw approximately $118,000 just to cover the Social Security shortfall. That’s on top of planned withdrawals, or the income that would have supplemented their Social Security benefits.
2. The lost compounding potential: To further illustrate the impact on their portfolio, it's also important to understand how much the couple could lose in potential investment returns—because it’s not simply the additional withdrawals causing portfolio drag, but the degree to which that money could have compounded if left in the market.
If we assume the couple earns 7% annual average returns and makes withdrawals at the end of each year, the combined portfolio drag could reach roughly $161,231.68 over 10 years.
Remember that the above example is just an illustration, not a forecast. Actual results would depend on inflation rates, investment returns, the timing of withdrawals, and how long the money needs to last.
Further, households would likely feel the impact of a Social Security benefit reduction differently depending on their overall plan and desired lifestyle. A couple with substantial income from pensions and flexible spending might absorb a benefit reduction without materially changing their lifestyle. Someone whose retirement budget already depends heavily on Social Security may have considerably less flexibility.
How to prepare for potential Social Security changes
While the future of Social Security may be uncertain, and planning in the face of uncertainty can be a challenge, savers might take comfort in knowing that there are concrete actions they can take now to help give them more control over their finances in retirement. Additionally, it's important to point out that Congress historically has always achieved compromises to continue funding Social Security.
Nevertheless, if you’re worried about Social Security uncertainty affecting your own retirement, consider these tips to prepare:
1. Consider delaying your Social Security claiming age
Remember that, per current law, waiting to claim your benefit at age 70 versus age 67 (the full retirement age) can permanently increase your payout by about 8% per year. Claiming between 62 and 66 can reduce your benefit by up to 30%. You can log on to your Social Security account to see your projected benefit at different claiming ages. You can also use Fidelity’s Social Security Benefits Calculator to understand more about when to claim benefits.
If you’re within 3 to 5 years of retiring, consider meeting with a financial professional for help modeling different timelines and benefit amounts in the context of your overall plan.
2. Make the most of catch-up contributions
Saving more of your income, if you’re able to, can go a long way in offsetting any potential shortfall in Social Security benefits. In 2026, you can save up to $24,500 in an employer-sponsored retirement plan, such as a 401(k), 457, or 403(b). Pretax contributions can lower your taxable income today and grow tax-deferred over time.
Once you turn 50, you become eligible for catch-up contributions that enable you to save thousands more per year than younger workers. Workers 50 and older in 2026 can contribute an extra $1,100 to IRAs (non-employer-sponsored retirement accounts) and an extra $8,000 to workplace plans. If you’re aged 60, 61, 62, or 63 this year, the catch-up contribution limit increases to $11,250 from $8,000. (The catch-up contribution reverts to $8,000 for those who are age 64 and over.)
Plus, 403(b) participants with 15 or more years of service are eligible for an additional $3,000 catch-up contribution to their plan, up to a lifetime maximum of $15,000 and subject to eligibility rules.
Note: Be sure you understand the new Roth 401(k) catch-up rules if your FICA-taxable earnings are above $150,000.
3. Create your own pension-like income
Social Security isn’t the only guaranteed income available to retirees. Like a traditional pension,10 income annuities can convert a portion of your savings into a predictable stream of guaranteed11 income that can help cover essential retirement expenses.
- Deferred-income annuities might appeal to pre-retirees who want to set up a stable stream of income to begin at a pre-selected future date for a defined period, or for the rest of their life. One benefit is that it shifts longevity, interest-rate, and market risks off your back and onto the issuing insurance company. However, in exchange for guaranteed income, you give up the opportunity for higher returns during the deferral period that more aggressive investment options might produce.12
- Immediate-fixed income annuities might be an option for someone who is near retirement or already retired and wants to use a portion of their retirement assets to set up a stream of reliable income now. Your investment won’t have growth potential, but you might consider an optional feature like an annual payment increase benefit, where you can choose a percentage by which the payment will increase each year. Note: This feature can help your payments keep pace with inflation.13
4. Talk with a financial professional
Whether the future of Social Security benefits keeps you up at night or you’re confident in your ability to save for your own retirement needs, think about meeting with a financial or tax professional to help you prepare for whatever may come. A plan is your biggest asset.