Social Security trust fund projected to be insolvent in 2032

First Citizens Wealth INTEL: Insights and News—Taxation, Election & Legislation

Each month, we'll cover time-sensitive updates on tax, election and legislative developments that could affect you.

When will Social Security run out?

According to the 2026 Social Security and Medicare Trustees Report, the Old-Age and Survivors Insurance Trust Fund is projected to be depleted in the fourth quarter of 2032. This makes it one quarter earlier than last year's projections. Aside from congressional action, retirement and survivor benefits would be reduced by nearly a quarter for all beneficiaries in 6 years.

To understand what could happen to your benefits and the legislative solutions being proposed, it helps to know how the Social Security system works.

What is the Social Security trust fund?

The US Social Security system has two trust funds that help finance retirement, survivor and disability benefits. Each fund accumulates reserves during years when payroll tax revenue exceeds benefit payments, and these reserves help cover shortfalls that occur when annual program costs exceed income.

The two trust funds are:

• Old-Age and Survivors Insurance, or OASI, which currently pays retirement and survivor benefits to more than 63 million Americans
• Disability Insurance, or DI, which provides benefits to roughly 8 million disabled workers and their dependents

Together, the two funds paid $1.61 trillion in benefits during 2025, while total program costs exceeded income by $160 billion. Trust fund reserves covered this shortfall. Combined trust fund reserves at the end of 2025 were $2.56 trillion, down from $2.72 trillion a year earlier.

Who is impacted by Social Security insolvency?

The projected trust fund shortfall could affect individuals as well as businesses throughout the US.

Individuals

The OASI Trust Fund is projected to pay 100% of scheduled benefits until the fourth quarter of 2032. After that, a portion of earnings of active workers will continue to cover about 78% of scheduled retirement and survivor benefits paid by Social Security.

The DI Trust Fund is in a much stronger financial position. It's projected to pay 100% of scheduled disability benefits through at least 2100, the end of the current projection period.

To counteract the OASI shortfall, Congress could consolidate the OASI and DI trust funds. The combined trust fund would remain solvent through the third quarter of 2034, which is unchanged from last year's projection. At that point, the continuing income would be sufficient to pay approximately 83% of scheduled benefits.

Businesses

The projected Social Security insolvency also carries implications for business owners and employers. Payroll taxes are the primary funding mechanism for Social Security. Any legislative fix is likely to involve adjustments to this tax structure, which could affect employer costs.

Beyond potential payroll tax changes, businesses should consider how Social Security uncertainty could affect their workforce. Employees nearing retirement may delay leaving the workforce if they expect reduced benefits. Alternatively, they may look to employers to help fill possible gaps through enhanced workplace retirement benefits.

What's causing the projected insolvency?

Three factors accelerated the Social Security trust fund depletion timeline, moving the OASI Trust Fund's projected depletion date from early 2033 to late 2032, according to the trustees.

The Social Security Administration revised its long-term fertility rate assumption downward—from 1.90 children per woman to 1.75—to align more closely with projections from the Congressional Budget Office and US Census Bureau. Fewer births over time means fewer future workers contributing payroll taxes.

Trustees significantly reduced immigration projections, largely reflecting more restrictive current policies. Lower net immigration means fewer workers paying into the Social Security system over the long run.

The One Big Beautiful Bill Act, signed into law July 4, 2025, made the lower ordinary income tax rates permanent and expanded standard deductions first enacted under the Tax Cuts and Jobs Act of 2017. Because a portion of Social Security benefits are subject to income tax, the lower tax rates mean less revenue flowing into the OASI and DI trust funds.

What are the potential solutions to the insolvency?

Aside from the option of consolidating the OASI and DI trust funds, members of Congress have proposed several pragmatic approaches to address the funding shortfall. The four most likely solutions being considered are expected to involve a combination of revenue- and benefit-based tactics.

• Raise or eliminate the payroll tax cap. This would make higher earners pay Social Security tax on more of their wages. It's one of the more frequently discussed approaches that focuses on the revenue side of the issue.
• Increase the payroll tax rate. A modest increase in the Social Security payroll tax phased in over time could generate more revenue.
• Slow down benefit growth for higher earners. Instead of reducing benefits to retirees equally, this approach adjusts future benefits for higher-income beneficiaries while preserving benefits for lower-income beneficiaries.
• Gradually adjust the retirement age. This would increase the age at which workers become eligible for full retirement benefits to reflect today's longer life expectancies and help counteract the trust fund depletion.

The most probable outcome won't be a single approach but instead a combination of actions that addresses the shortfall without placing the burden on a single group.

What action is required and when

Individuals approaching retirement should review how their financial plans account for the possibility of reduced Social Security income. For example, they can stress test their current financial plan with Social Security distributions reduced by 22 to 30% to understand the impact it may have on their goals. If they're no longer able to reach their goals in this scenario, the next sensible step would be to adjust the plan before any Social Security reduction takes place.

Waiting to claim benefits, increasing savings and revisiting retirement withdrawal strategies are also options worth evaluating now. Similarly, those already retired should assess whether their cash flow could absorb a benefit reduction if Congress doesn't act.

Businesses should model the potential impact of payroll tax changes and review employee benefits, particularly if they have a large population of employees near retirement.

Given the potential changes to Social Security benefits in the years ahead, many businesses may benefit by enriching their own retirement programs. Offering more competitive retirement benefits can help boost employee morale, as well as retention. Connecting with a First Citizens institutional representative can help businesses better understand and enhance their retirement programs.

Who to talk to now

Social Security is a foundational part of retirement planning for millions of Americans, but it may not function as expected in the years ahead. A comprehensive financial plan can help withstand this kind of uncertainty.

A First Citizens Wealth consultant can help individuals and businesses evaluate how potential changes to Social Security benefits could affect retirement timelines, income strategies and overall financial goals to identify steps to strengthen plans while preparing for a range of possible outcomes.