I know most of you are off enjoying the holiday weekend. I always note it as the halfway point for the year. I thought about keeping the topic light due to the holiday. However, I rejected it to go in the exact opposite direction. Maybe make this the center of your BBQ party debates – you’ll be the life of the party.
The 2026 Trustees Report came out last month, and the headline is the same one we’ve been ignoring for years: the retirement trust fund is projected to run dry in late 2032. That’s about six years away. If Congress does nothing — which is its specialty — everyone’s benefits get cut by roughly 22% automatically. Not means-tested, not phased in gently, just a flat haircut that lands on current retirees and future ones alike.
I’m not a fan of that outcome. We’ll be okay, as I’ve planned our finances to assume minimal Social Security. However, there may be more than a hundred million people who aren’t in a similar position.
Fair warning up front: I don’t run the numbers as the big think tanks do. I can’t promise you my plan closes the gap down to the last decimal. What I can give you is my philosophy, which is to be modest in a bunch of different places rather than dramatic in any single one. The reasoning is simple. A giant swing in one direction hands the other party something easy to campaign against, and then nothing happens. Spread the discomfort around, and maybe — just maybe — both sides can hold their nose and sign the thing.
Here’s where I’d start.
1. Leave the retirement age alone
This is the go-to move for a lot of reformers, and I understand the appeal. People live longer, so they should work longer, right? The trouble is that the longevity gains haven’t been shared evenly. Wealthier, desk-job Americans have picked up most of the extra years. The person who spent 40 years on their feet in a warehouse mostly hasn’t. Raising the retirement age asks the people with the shortest retirements to give up the biggest slice of theirs. That’s backward, and I’d take it off the table.
2. Raise the wage cap
Right now you only pay Social Security tax on the first $184,500 you earn. Make a million a year? You stopped paying into the system back in early March and coasted the rest of the year for free. Only about 6% of workers earn above the cap at all, so lifting it touches a pretty small slice of high earners. I’d reapply the payroll tax on wages above something like $400,000 — leaving a “donut hole” in the middle so two-income professional households don’t get clobbered, then having it kick back in at the top.
Is $400,000 the right line? Honestly, I have no idea. Maybe it’s $300,000 or $500,000. That’s a job for the people who love crunching those big numbers. I’ll happily defer to them on the exact figure. I just think a person pulling in seven figures can afford to chip in past March.
Add a small surtax on investment income for high earners
Social Security is funded almost entirely by taxes on wages. That means the wealthiest Americans — the ones living mostly off capital gains and dividends — barely fund it at all. I’d add a modest surtax on investment income: 1% for single filers over $250,000 or couples over $400,000. If you want a second tier, make it 2% on income above $500,000 single and $1 million joint. We’re talking a penny or two on the dollar, and only for people doing quite well. It won’t change their lives, and it widens who’s actually paying in.
Readers of this blog, and myself, are likely to have funded a lot of their retirement plans this way. This may catch some of the Fat FIRE people out there. It might impact us because my wife’s military pension is already significant and we’ve invested a lot. So be it. It’s reasonable that we do our fair share.
Nudge the payroll rate up, slowly
The total Social Security tax is 12.4%, split between you and your employer. I’d let it drift up to 13.0% over a long stretch of years — not a jolt, a glide. An abrupt tax hike is a political grenade. A slow, pre-announced climb of a tenth of a percent a year is something people and businesses can plan around and barely feel. Boring is the whole point here.
The Washington Post recently argued against something like this, which felt like a Bezos-directed piece. Their argument is that it would amount to taxing businesses more. I’m fine with it because businesses saved a TON of taxes with the 2018 Tax Cuts and Jobs Act.
Build a real reserve — and keep the politicians out of it
Here’s my one semi-fun idea. Create a “Social Security Plus” reserve, professionally managed, invested in broad, boring index funds, with ironclad rules against any politician raiding it or steering it toward a pet project. Something run more like a decent pension fund or a university endowment than a government slush pile.
Now, I have to admit the obvious problem with this one: there isn’t a big pile of spare money sitting around to invest. The program is running a cash deficit as it is. So realistically this doesn’t move the needle much in the near term, and I won’t pretend otherwise. But I like the idea of building the machinery now — the governance, the guardrails, the discipline — so that if surpluses ever do show up, there’s a grown-up structure ready to put them to work instead of Congress inventing a new way to spend them.
There’s a suggestion that we should borrow over a trillion dollars and invest that, but that feels like investing on margin. I’m still willing to consider this if it buys some political progress in the other areas mentioned.
Protect the people at the bottom, and the people near the door
Whatever we end up doing, I don’t want to squeeze low-income retirees who are already living close to the bone. If anything, the minimum benefit for a lifetime of low-wage work should get a little more generous, not less. And nobody who’s five years from retirement should have the rug yanked out from under them. Changes should land on those of us with time to adjust, not on someone who already mailed in their paperwork.
Final Thoughts
So that’s my napkin plan. Leave the retirement age where it is, ask a bit more from high wages and investment income, let the payroll rate creep up gently, stand up a reserve for the future, and shield the folks who can least afford a hit. No single piece is dramatic. Added together, I’d like to think it gets us most of the way there. I should note that I’m just a guy with a blog – a real actuary might spot a hole in this in about four seconds. If it were easy, it would already have been done, right?
What would you change? If someone handed you the pen and told you it had to get 60 votes in the Senate, where would you give a little, and where would you hold the line?
