With Social Security just a few years away from insolvency, it’s more important than ever to build up your own retirement savings so you’re prepared to cover what your benefits don’t. Every dollar you can set aside now could grow to be worth tens or hundreds of dollars by the time you’re ready to leave the workforce.
If that’s not enough motivation to save for retirement, then the possible Social Security change looming on the horizon might be. While it could help the program avoid benefit cuts, it may also make saving for retirement a lot more challenging than it is today.
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Social Security’s trust funds are expected to run out of money around 2032, according to a recent Congressional Budget Office report. This could result in benefit cuts of nearly 20% if the government doesn’t step in and alter the program to keep it sustainable for future generations.
The trouble is, the only way to avoid benefit cuts is to increase the program’s revenue, and that comes from taxes. The bulk of Social Security’s funding comes from payroll taxes that all workers pay on their first $184,500 in income in 2026. Right now, the tax is 12.40%, split evenly between employees and employers.
The government may increase this tax to generate more revenue for the program, thereby decreasing workers’ after-tax income. That would leave them with less money to spend on living expenses or to save for long-term goals, like retirement.
The latest Trustees Report indicates that to fully resolve the funding shortfall, the payroll tax rate would need to increase by 4.27 percentage points to 16.67%. Keep in mind that, unless you’re self-employed, you’d only shoulder half that increase, or about 2.14 percentage points. But it’s still a notable change.
Someone making $60,000 per year would lose 8.34% of their income to these taxes — about $5,000 — compared to the 6.20%, or $3,720, they’re paying right now. That’s an annual loss of over $1,280.
The good news is that this isn’t guaranteed to happen. Raising the payroll tax is one of several strategies the government could use to resolve Social Security’s funding issues. Other proposals, like increasing the benefit tax rate, would affect seniors rather than workers.