With the Social Security trust fund projected to be depleted by the mid-2030s, policymakers are discussing potential reforms. While no changes have been enacted yet, understanding possible scenarios can help you prepare.
A Look Back: The Social Security Amendments of 1983
The last major reform to Social Security occurred in 1983 when the program was facing an imminent funding crisis. By the early 1980s, the Social Security trust fund was running dangerously low, and projections showed it would be unable to pay full benefits within just a few years. The crisis stemmed from several factors:
- Demographic Shifts – Increased life expectancy, a declining birth rate, and the Baby Boomer generation entering retirement in the future meant there would be fewer workers paying into the system relative to beneficiaries.
- Economic Conditions – High inflation and slow economic growth in the late 1970s and early 1980s weakened payroll tax revenues.
- Benefit Adjustments – Social Security benefits had been automatically adjusted for inflation (COLA) since the mid-1970s, which increased costs.
In response, President Ronald Reagan and House Speaker Tip O’Neill worked with a bipartisan commission led by Alan Greenspan to propose a set of fixes that included:
- Gradually increasing the full retirement age from 65 to 67 (Note: This only applied to those born after 1937 so anyone over age 45 was not impacted by this change.)
- Taxing Social Security benefits for higher-income retirees for the first time.
- Bringing federal employees into the system, expanding the base of contributors.
- Increasing payroll taxes sooner than planned to boost revenue.
These changes strengthened Social Security for several decades, but they were not a permanent fix. Today, we face a similar challenge: if no reforms are made, the system will only be able to pay about 77–80% of promised benefits starting in the mid-2030s.
Likely Social Security Reforms & Their Potential Impact
Raising the Full Retirement Age (FRA) Again
- What Might Happen? The FRA could increase from 67 to 68, 69, or even 70 for younger workers.
- Who Would Be Affected? Likely those currently under 50, since past reforms have given people time to adjust.
Increasing Payroll Taxes
- What Might Happen? The Social Security payroll tax rate (currently 6.2%) could increase for workers and employers.
- Who Would Be Affected? All workers, but especially higher earners.
Raising or Eliminating the Payroll Tax Cap
- What Might Happen? Currently, only wages up to $176,100 (in 2025) are taxed for Social Security. This cap could be raised or eliminated.
- Who Would Be Affected? Higher earners (>$176K annually).
Adjusting Benefit Formulas (Means Testing or Reduced COLAs)
- What Might Happen? Benefits for higher earners could be reduced or grow more slowly. COLA (cost-of-living adjustments) might be reduced over time.
- Who Would Be Affected? Mostly higher-income retirees and those relying heavily on Social Security.
Three Things You Can Do to Help Ensure Retirement Readiness Before a Social Security Reform
- Diversify Retirement Income
- Relying only on Social Security is risky. Build assets through:
- 401(k)s, IRAs (Roth & Traditional)
- Taxable investments (stocks, bonds, annuities)
- Health Savings Accounts (HSAs) for medical expenses
- Relying only on Social Security is risky. Build assets through:
- Prepare for Longer Working Years
- If the FRA increases, having a flexible job or business could make a huge difference.
- Consider part-time work, consulting, or remote opportunities.
- Stay Updated on Policy Changes
- Congress will need to act before 2034. Watching for legislative updates can help you adjust strategies early.
Final Thought: Plan for a “Lower Benefit” Future
The 1983 reforms successfully kept Social Security solvent for decades, but a new round of changes will be needed soon. Social Security won’t disappear, but benefits may be delayed, taxed more, or reduced for high earners. The best strategy? Assume you’ll receive less and save more independently.
If the idea of planning for your retirement on your own seems daunting, especially with looming social security reforms, it may be time to consider engaging with a wealth advisor. Clients of Marshall Financial can look forward to having a trusted partner walking them through scenarios like these, all while helping craft a tailored financial plan for their needs. Ready to reach out? Contact us today.
For more information on Social Security, click here to listen to our investment department’s interview with Mary Beth Franklin – a finance journalist turned social security expert. Mary Beth, Adam and Sean have an in-depth discussion about Social Security, from its humble beginnings 90 years ago, up to its rocky standing today. They talk recent changes put in place by the Trump administration, looming funding issues, as well as its possible future.
