The latest Social Security Trustees’ report shows that the nation’s crucial retirement and disability program will be able to pay full benefits through 2035—one year later than projected in the previous year’s report. The slight improvement in the program’s long-term financing is due to a stronger-than-expected economy and wage growth as payroll taxes are the primary source of Social Security funding.

That’s good news in the short run, but the Social Security program still faces a long-term financial crisis if Congress doesn’t act within the next 10 years to stabilize the system. Options includes possible benefit cuts to current and/or future beneficiaries, higher payroll taxes on upper-income workers, and new revenue sources.

Employers and employees each pay 6.2% of gross wages up to an annual maximum ($168,600 in 2024) and self-employed workers pay a combined tax rate of 12.4% up to the annual maximum. Earnings above the annual maximum are not subject to FICA payroll taxes (although excess earnings are subject to Medicare taxes). And that’s one of the key problems of the imbalance of Social Security funding and benefits.

When Congress last tackled Social Security reform in 1983, actuaries said that as long as 90% of U.S. wages were subject to payroll taxes, Social Security would never run out of money. But now, so many workers earn more than the maximum annual wage of $168,600, that only 82% of U.S. wages are being taxed to fund Social Security benefits. That means there is not enough payroll tax revenue to fully fund Social Security benefits in the long run.

Other sources of Social Security revenue currently include income taxes paid on Social Security benefits and interest earned on the Social Security Trust Fund reserves, which are invested in special-issue government bonds that earned an annual rate of 2.4% in 2023. Some proposed legislative fixes call for investing trust fund reserves in a way that would generate a higher return or allowing Social Security to borrow money from general tax revenues—something that has never been done in the program’s 85+ year history. Up to now, payroll taxes have been earmarked to fund Social Security so the program has not been subject to Congress’s annual budgetary battles. Borrowing from general revenues could change all that.

Total income to the combined Old Age and Survivors (OASI) and Disability (DI) trust funds amounted to $1.351 trillion in 2023, including $1.233 trillion from net payroll tax contributions, $51 billion from taxation of benefits, and $67 billion in interest. Although the OASI and DI trust funds are separate entities, the combined projection of the two funds is frequently used to indicate the overall financial status of the Social Security program.

Total spending from the combined OASI and DI trust funds amounted to $1.392 trillion in 2023—more than total income to the program. As a result, the excess trust fund reserves which has been helping to pay Social Security benefits since 2010 when expenditures first exceeded income will continue to dwindle until they are expected to be exhausted in 2035. At that point, there would be only enough revenue from ongoing payroll taxes and income taxes on benefits to pay 83% of promised benefits. That translates into a possible 17% across-the-board benefits cut.

“So long as Americans across our country continue to work, Social Security can and will continue to pay benefits,” said Martin O’Malley, Commissioner of Social Security Current. “Congress can and should take action to extend the financial health of the Trust Fund into the foreseeable future, just as it did in the past on a bipartisan basis,” O’Malley said in a statement accompanying the release of the 2024 Trustees report on May 4.

“Eliminating the shortfall will bring peace of mind to Social Security’s 70 million-plus beneficiaries, 180 million workers and their families who contribute to Social Security, and the entire nation,” O’Malley said. “Whether Congress chooses to eliminate the shortfall by increasing revenue, reducing benefits, or some combination, is a matter of political preference, not affordability,” he said.

While no legislative fixes are likely in an election year, Congress and the White House need to address this crucial funding issue in the near future to ensure that current and future retirees can count on monthly Social Security payments that are an essential piece of most American’s retirement security. Social Security benefits are one of the few sources of retirement income that continue for life—no matter how long you live—and receive regular cost-of-living adjustments to maintain buying power.