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Washington’s usual answer is to tax somebody more or reduce benefits. The first answer should be to ask why a multi-trillion-dollar trust fund was never managed like a real retirement reserve.
$2.79 Trillion Fund to Be Depleted by 2032
According to published reports and the most recent Social Security Trustees Report, the Social Security trust funds are heading toward an insolvency problem. The Old-Age and Survivors Insurance Trust Fund is projected to pay full scheduled benefits only until the fourth quarter of 2032. The combined OASI and DI trust funds are projected to run out of reserves in 2034 unless Congress acts.
The proposed solutions almost always involve raising taxes on somebody to cover the shortfall or reducing benefits.
Those who believe in the tax-the-rich strategy want to end the cap on Social Security wages. For 2026, that cap is $184,500. Social Security taxes are 6.2% for the employee and 6.2% for the employer, or 12.4% combined. Ending the cap is nothing more than raising the income tax rate significantly on higher income earners with little or no additional Social Security benefit for those paying the higher taxes.
The second strategy is to raise the retirement age because people live longer. When Social Security was instituted, life expectancy was far lower and the retirement age was 65, meaning the system was built for a country where many people paid into the system and fewer took benefits for decades.
Due to better medical technology, new drugs, better standards of living, better food, better housing, washing machines, dishwashers, vacuum cleaners, cleaner water, safer workplaces, and a safer society, Americans live longer. Because of low birth rates, we also have an aging America with a larger percentage of retirees compared with workers.
Social Security Was Not Managed Like a Pension
Contrary to popular belief, the money paid into Social Security is not invested like a pension fund. It is used to pay the Social Security benefits of current retirees. There were surpluses in the past, and those surpluses were put into the Trust Fund. That money was then loaned to the government through special Treasury securities.
When you realize that the Social Security Trust Fund money could have been invested like every other fiscally responsible pension reserve, you realize that government mismanagement of the trust is a major reason why Social Security is at risk.
It is not too late to solve the problem.
Below is an analysis of how to significantly cover current Social Security shortfalls and help keep the funds solvent without starting with higher taxes.
Chart 1: The combined trust fund reserves rose for decades, peaked, and have now started to fall.
The fiscal-year data show that the combined Social Security trust funds grew year after year for decades. The reserves grew from roughly $1.0 trillion in fiscal year 2000 to more than $2.9 trillion in 2020. By the end of fiscal year 2025, the combined reserves had fallen to roughly $2.62 trillion.
Chart 2: In recent years, total cost has moved above total income.
Social Security Is in the Red
The issue is not complicated. The program is now paying out more than it brings in. In business terms, it is in the red. It spends more than it takes in. In fiscal year 2025, total income was about $1.438 trillion while total cost was about $1.582 trillion. That created a shortfall of about $143.6 billion for the year.
Chart 3: The annual net change turned negative after years of small surpluses.
It is interesting that the Social Security trust fund grew every year from 1983 through 2020. The first time the trust fund started depleting in this table was 2021, during the Biden Administration. That does not mean one administration alone caused a problem that was decades in the making, but it does show the point where the long-term problem became a cash-flow reality.
There was also a big jump in the shortfall in 2025. Under the Social Security Fairness Act, millions of people became eligible for retroactive payments and higher ongoing monthly benefits because the Windfall Elimination Provision and Government Pension Offset were repealed. That may have corrected an unfairness for many public workers, but it also has a cost. Government should be honest about how it pays for promises. According to Social Security updates, millions of people received retroactive payments and higher monthly payments, which could help explain the large uptick in the Social Security deficit in 2025.
Chart 4: The trust funds’ effective annual interest rate has remained in the low single digits.
The effective interest rates on the trust fund were pretty good by today’s standards during parts of the 1980s and 1990s. But for the ten-year period ending in 2025, the average effective interest rate was only about 2.69%.
Using the market figures in my working draft, the ten-year average on a stock index fund was 14.68%, while the ten-year average on bonds was 0.358%. Using those numbers, a 60/40 stock-bond mix would produce an average yearly return that is 6.467 percentage points higher than the current average trust fund return. On a $2.79 trillion reserve, that would generate roughly $180 billion more per year than the current average return.
Using those same numbers, a 90/10 stock-bond mix would produce an average yearly return that is 10.61 percentage points higher than the current average trust fund return. On a $2.79 trillion reserve, that would generate roughly $296 billion more per year than the current average return.
Chart 5: The working-draft return assumptions show how much additional income a diversified approach could theoretically generate.
The 60/40 mix is the traditional conservative stock-bond mix of retirement portfolios. The 90/10 mix is a more aggressive approach. Even the 60/40 mix would almost cover the current Social Security shortfall under these assumptions.
The Index Fund Solution
I believe that the first step in dealing with the shortfall is to reinvest most of the money in a 60/40 mix and invest a portion, for example 20%, in a 90/10 option. This is not an argument for dumping trillions of dollars into the market overnight. The money would have to be invested gradually, or such a large infusion of cash into the markets would cause prices to rise significantly.
Reinvesting the money would make a huge difference in the solvency of the Trust Fund.
Other measures should also be considered to supplement the shortfall: raising the retirement age gradually, a small increase in the Social Security tax rate, small increases in the maximum income that is taxable, and real efforts to reduce fraud, waste, and abuse.
But those measures should come after Washington admits the basic management problem and takes accountability. While affordability is the buzz word for both sides, it is time for accountability. Before Congress asks Americans to pay more or accept less, it should explain why the Trust Fund has not been managed like a true long-term retirement reserve.
Social Security can still be protected. But the answer cannot simply be more taxes, fewer benefits, and more excuses from the same government that mismanaged the trust in the first place.
Sources and Notes
• Social Security Administration, 2026 Trustees Report Summary: OASI projected depletion in Q4 2032; combined OASDI projected depletion in 2034. [ [link removed] ]
• Social Security Administration, Contribution and Benefit Base: 2026 taxable maximum of $184,500 and OASDI rate of 6.2% employee / 6.2% employer. [ [link removed] ]
• Social Security Administration, Fiscal Year Trust Fund Operations table: OASI and DI combined, 1977-2025. [ [link removed] ]
• Social Security Administration, Average and Effective Annual Interest Rates on special-issue securities. [ [link removed] ]
• Social Security Administration, Social Security Fairness Act update: retroactive payments and higher monthly benefits following repeal of WEP and GPO. [ [link removed] ]
• Portfolio-return examples are illustrative, not a forecast, guarantee, or investment recommendation.

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