Personal Finance
Social Security needs more money. The question is, who will pay it?
People march through downtown Detroit on April 19, 2025.
Dominic Gwinn | Afp | Getty Images
Social Security is the nation’s largest social insurance program, making payments to approximately 75 million Americans every month.
Yet the program faces an imminent funding shortfall.
Social Security’s trust fund for retirement benefits may run out in 2032, which could prompt an across-the-board benefit cut, according to projections from the Social Security Administration and Congressional Budget Office.
Social Security has been on the brink of funding cuts before. In 1983, when the last major reforms to the program were enacted, Social Security was just months away from not being able to pay full benefits.
At that time, lawmakers voted on bipartisan legislation that included taxes on benefit income and gradual increases to the retirement age to restore the program’s solvency.
With the program facing looming trust fund depletion dates, Washington leaders will need to come together again to shore up the program’s funding — or risk imminent benefit cuts if the program can’t pay benefits as promised.
During a March 25 Senate budget committee hearing focused on the “path forward” for the program, some leaders said Congress is up to the task.
“We can do this,” Sen. Sheldon Whitehouse, D-R.I., said of addressing the program’s shortfall. “It’s actually not all that hard or complicated. And the sooner we do it, the better off everyone will be.”
Because any new Social Security laws need to clear a 60-vote threshold in the Senate, changes to the program must have support from both parties, said Emerson Sprick, director of retirement and labor policy at the Bipartisan Policy Center.
Moreover, the 2026 class of senators will be the first federally elected group that must confront the program’s looming depletion dates within their six-year term, Sprick said.
“Members of Congress and their staffs are realizing this is something that has to be done,” Sprick said.
That starts with discussions between members of both sides of the aisle who can advance policy recommendations, he said.
Yet when it comes to making that reform a reality, Washington leaders still face one big question: How should it be paid for?
Here are some of the ideas that lawmakers and experts are talking about.
Option 1: Create a separate investment fund
In the next 75 years, Social Security faces a $25 trillion shortfall — the gap between estimates for revenue coming into the program and benefits to be paid out, according to projections from the program’s trustees.
When adjusted for inflation, that total climbs to about $674 trillion, Sen. Bill Cassidy, R-La., said at the Senate budget committee hearing.
To address the shortfall, lawmakers have several options, Cassidy said: do nothing and let the estimated 23% to 28% benefit cuts happen, or enact a combination of tax increases and benefit cuts. Lawmakers last tried to do find a solution combining cuts and increases with a commission under President Barack Obama, and it failed, Cassidy said.
Alternatively, lawmakers may opt for a third choice, according to a proposal from Cassidy: create a diversified investment fund to help shore up the program’s finances. The senator’s proposal has not yet been formally introduced as a bill.
Per Cassidy’s plan, the government would borrow $1.5 trillion that would then be invested similarly to a 401(k), the Louisiana senator said at the hearing. The fund would be separate from Social Security’s current trust funds and would be held in escrow for 75 years, he said. The balance would offset any borrowing required to help pay scheduled benefits, Cassidy said at the hearing.
The plan would include “strict legislative guardrails” to protect the funds, according to Cassidy, including independent management focused on maximizing returns while preventing political interference. That would include annual audits and full transparency, he said.
BlackRock CEO Larry Fink recently wrote in his annual letter to shareholders that Social Security’s funding should be allowed to grow with the economy. Rather than just the conservative Treasury bonds the Social Security funds are currently invested in, the money could be invested more aggressively, like other long-term pension plans, to achieve better returns, he wrote.
Yet some experts have criticized Cassidy’s proposal, particularly for the increased risk it would entail, given that the benefits are supposed to be guaranteed. Moreover, any gains would be limited by the cost of borrowing the funds.
During the hearing, Sen. Tim Kaine, D-Va., said he supports the proposal as one ingredient to help resolve the solvency crisis.
The amount borrowed could be adjusted to coordinate with other proposals to help address the solvency gap, Kaine said. Benefits paid would not be determined by the fund’s returns, he said. The strategy would build on other examples, particularly the National Railroad Retirement Investment Trust, established in 2001 to invest railroad retirement assets, according to both Cassidy and Kaine.
Option 2: Increase payroll taxes for high earners
At the Senate budget committee meeting, Whitehouse put forward another proposal that calls for individuals with incomes over $400,000 to pay more toward Social Security.
Social Security payroll taxes are capped at $184,500 in wages for 2026. Once that threshold is reached, high earners no longer pay into the program for the year. Million-dollar annual wage and salary earners stopped paying into Social Security as of March 9.
Whitehouse’s bill, called the Medicare and Social Security Fair Share Act, proposes a $400,000 threshold for Social Security that also applies to investment income, Whitehouse said at the hearing. The plan would also close a loophole that allows some wealthy owners of pass-through businesses to avoid paying Medicare taxes.
“The only way to extend solvency without cutting benefits or borrowing money, which would be also very dangerous, is to raise more revenue,” Whitehouse said during the hearing.
Whitehouse reintroduced the bill in 2025 with Democratic Rep. Brendan Boyle of Pennsylvania. The proposal would extend the solvency of both Social Security and Medicare by at least 75 years, according to analyses by the agencies’ actuaries.
Eliminating the payroll tax cap has been a popular proposal among Democrats, with Sens. Elizabeth Warren, D-Mass., Bernie Sanders, I-Vt., and others proposing to apply Social Security payroll taxes to all income over $250,000. It remains to be seen whether Republicans would sign off on those tax increases.
Option 3: Cut benefits for those who can afford it
Instead of raising Social Security payroll taxes for high earners, lawmakers may opt to cap the benefits they receive.
During the Senate budget committee hearing, Sen. Lindsey Graham, R-S.C., said Social Security survivor benefits were an important part of his family’s life when his parents both passed away within about 15 months of each other.
“There was a time in my life where that Social Security check really, really mattered,” Graham said.
“Now, there’s the time in my life where I could probably get by with less, and if that’s what it takes to save Social Security, count me in,” Graham said.
The Committee for a Responsible Federal Budget recently put forward a proposal to cap Social Security benefits for high earners who consistently had the taxable maximum earnings. The cap would be $100,000 for married couples and $50,000 for individuals.
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The proposal drew criticism from groups including the AARP, since it would go against the program’s premise of providing benefits that reflect what beneficiaries have earned and open up the possibility for further benefit cuts.
In a separate Senate Committee on Aging hearing on March 25, Warren brought up the idea of raising the retirement age, which some Trump administration officials have also suggested.
Raising the retirement age would mean an extra year of not receiving benefits, Dan Adcock, director of government relations and policy at the National Committee to Preserve Social Security and Medicare, said at the hearing.
“It doesn’t matter whether you claim benefits at 62 or 70 or how long you live, it is a benefit cut any way you slice it,” Adcock said.
Such a change could be particularly detrimental for those who need to retire early, he said.
Proponents of raising the retirement age say that Americans generally have longer life expectancies and that such a policy could be implemented in a way that protects lower-income individuals.
‘Open debate’ a first step toward reform
The AARP’s members, who are primarily age 50 and over, routinely say they want to see Social Security protected and strengthened, according to Jenn Jones, vice president of financial security and livable communities at the nonprofit representing older Americans.
To do that, Congress needs to get serious about talking about solvency and putting ideas on the table, Jones said. The Senate hearing allowed for the consideration of many approaches, she said.
“That’s what the process should look like,” Jones said. “It’s open debate.”
But because Social Security reform will likely include a combination of ideas, it is impossible to endorse any one approach at this stage, Jones said.
“We have to really be able to see and evaluate the entire package to understand what it will mean for millions of people,” Jones said, not just current beneficiaries, but also their children and grandchildren.
The Federal Reserve held interest rates steady at the conclusion of its policy meeting on Wednesday.
In what could be Jerome Powell’s last as chair before President Donald Trump’s yet-to-be-confirmed nominee Kevin Warsh takes the helm, central bankers maintained the federal funds rate in a target range of 3.5% to 3.75%.
Inflation has surged since the war with Iran began, leaving policymakers with limited room to act, according to Sean Snaith, the director of the University of Central Florida’s Institute for Economic Forecasting. “We’re in a kind of suspended animation — between Iran and the Fed transition,” Snaith said.
Before the oil shock, inflation was holding above the Fed’s 2% target but not worsening. Now the jump in energy costs could have longer-term inflationary effects, economists say.
For Americans struggling in the face of higher gas prices and overall affordability challenges, the central bank’s decision to keep interest rates unchanged does little to ease budgetary pressures. “The cavalry isn’t coming anytime soon,” Snaith said.
How the Fed decision impacts you
The Fed’s benchmark sets what banks charge each other for overnight lending, but also has a trickle-down effect on many consumer borrowing and savings rates.
Short-term rates are more closely pegged to the prime rate, which is typically 3 percentage points above the federal funds rate. Longer-term rates, such as home loans, are more influenced by inflation and other economic factors.
Credit cards
Most credit cards have a short-term rate, so they track the Fed’s benchmark.
After the Fed cut rates three times in the second half of 2025, the average annual percentage rate has stayed just under 20%, according to Bankrate.
“Without Fed rate cuts, there’s not much reason to expect meaningful declines anytime soon, so carrying a balance will remain very expensive,” said Matt Schulz, chief credit analyst at LendingTree.
Mortgage rates
Fixed mortgage rates, on the other hand, don’t directly track the Fed but typically follow the lead of long-term Treasury rates.
Concerns about how the Iran war will impact the U.S. economy have already pushed the average rate for a 30-year, fixed-rate mortgage up to 6.38% as of Tuesday, from 5.99% at the end of February, according to Mortgage News Daily.
That leaves homeowners with existing low mortgage rates “feeling stuck,” said Michele Raneri, vice president and head of U.S. research and consulting at TransUnion. “Mortgages, more than any other credit type, work on a churn,” she said, referring to how a dip in rates can boost borrowing activity.
Student loans
Federal student loan rates are also fixed and based in part on the 10-year Treasury note, so most borrowers are somewhat shielded from Fed moves and recent economic uncertainty.
Current interest rates on undergraduate federal student loans made through June 30 are 6.39%, according to the U.S. Department of Education. Interest rates for the upcoming school year will be based in part on the May auction of the 10-year note.
Car loans
Auto loan rates are tied to several factors, including the Fed’s benchmark. Because financing costs remain elevated, new car buyers are taking on longer loans to keep their monthly payments manageable, according to the latest data from Edmunds.
Even so, with the rate on a five-year new car loan near 7%, the average monthly payment on a new car rose to $773 in the first quarter of 2026, an all-time high.
“Car buyers are in a tough spot right now because they’re getting squeezed from both ends: high sticker prices and high interest rates, with neither showing any signs of letting up,” said Joseph Yoon, consumer insights analyst at Edmunds.
“Until the rate picture shifts, buyers will keep stretching loan terms to make payments work, which only adds to the total cost of ownership down the road,” Yoon said.
Savings rates
While the Fed has no direct influence on deposit rates, the yields tend to be correlated with changes in the target federal funds rate. So, although rates on certificates of deposit and high-yield savings accounts have fallen from recent highs, they are holding above the annual rate of inflation.
For now, top-yielding online savings accounts and one-year CD rates pay around 4%, according to Bankrate.
“Yields on high-yield savings accounts and certificates of deposit are down from their peaks of a few years ago, but they’re still strong compared to what we’ve seen for most of the past decade,” Schulz said.
Milan Markovic | E+ | Getty Images
The average tax refund is 11.2% higher this season, compared with about the same period in 2025, according to the latest IRS filing data.
As of April 10, the average refund amount for individual filers was $3,397, up from $3,055 about one year ago, the IRS reported on Friday.
The IRS data reflects about 114 million individual returns received, out of about 164 million expected through Tax Day. Next week’s filing update is expected to include data through the April 15 deadline.
President Donald Trump‘s 2025 legislation, rebranded to the “working families tax cuts,” was a key talking point for Republicans on Tax Day.
With the November midterm elections approaching and Republicans defending slim majorities in Congress, many GOP lawmakers have highlighted Trump’s tax breaks and higher average refunds.
Meanwhile, affordability has been top of mind for many Americans amid rising costs of gas, electricity, food and other living expenses.
For filers who expected a refund this season, nearly one-quarter, or 23%, planned to use the funds to pay down credit card debt, and the same share said they would save the payment, according to the CNBC and SurveyMonkey Quarterly Money Survey, released in April. It polled 3,494 U.S. adults at the end of March.
Who benefited from Trump’s ‘big beautiful bill’
“It’s been a great tax season for the American people,” many of whom have benefited from Trump’s tax breaks, Treasury Secretary Scott Bessent said during a White House press briefing on Wednesday.
More than 53 million filers claimed at least one of Trump’s “signature new tax cuts” — the deductions for tip income, overtime earnings, seniors and auto loan interest — the Department of the Treasury also announced on Wednesday.
Those filers, who claimed the deductions on Schedule 1-A, have seen an average tax cut of over $800, according to the Treasury. Tax cuts can trigger a higher refund or reduce taxes owed, depending on the filer’s situation.
Some filers who itemize tax breaks have also seen benefits from the bigger federal deduction limit for state and local taxes, known as SALT. Trump’s legislation raised that cap to $40,000, up from $10,000, for 2025.
The latest SALT deduction limit change is expected to primarily benefit higher earners, according to a May 2025 analysis of various proposals from the Tax Foundation.
The Treasury has not released data on how many filers have claimed the SALT deduction during the 2026 filing season.
Traders work at the New York Stock Exchange on April 16, 2026.
NYSE
U.S. stocks climbed to record highs on Thursday against a backdrop of war, an oil supply shock and economic forecasts warning of stunted growth amid a protracted conflict.
Many investors may be thinking: Why?
Largely, it’s because the stock market is a barometer of what investors think will happen in the future, rather than an assessment of the present day, according to economists and market analysts.
Investors are essentially shrugging off the Middle East conflict as a blip that will be resolved relatively quickly, they said.
“The stock market isn’t trying to price what’s happening today,” said Joe Seydl, a senior markets economist at J.P. Morgan Private Bank. “The stock market is always trying to price what the world is going to look like six to 12 months from now.”
Why stocks have been ‘resilient’
The S&P 500, a U.S. stock index, fell about 8% in the initial weeks of the Iran war, from the start of the conflict on Feb. 28 to a recent low on March 30.
But stocks have rebounded since then, erasing all losses since the beginning of the war. The S&P 500 closed at an all-time high on Thursday — about 11% higher than its nadir at the end of March. That followed a record close on Wednesday.
“The market has remained very resilient in the face of the war and has rallied strongly on the prospect that it will be resolved,” said Mark Zandi, chief economist at Moody’s.
A ship waits to pass through the Strait of Hormuz following the two-week temporary ceasefire between the US and Iran, which is conditional on the opening of the strait, in Oman on April 8, 2026.
Shady Alassar | Anadolu | Getty Images
And while investors cheered the possibility of a diplomatic off-ramp to the conflict, the temporary ceasefire has appeared tenuous, with the U.S. and Iran each accusing the other of breaking the agreement.
Nations haven’t been able to reach a peace deal ahead of the ceasefire’s end. Vice President JD Vance said U.S. officials left peace talks in Pakistan over the weekend after the Iranian delegation refused to agree to American demands not to develop a nuclear weapon.
The markets ‘have memory’
Ultimately, the stock market is signaling a collective belief that tensions will ratchet down, the war will end in the near term and oil flows through the Strait of Hormuz will normalize, economists said.
That’s largely because investors have been conditioned to believe that President Donald Trump will back off if the economic pain becomes too intense, economists said — the so-called “TACO” trade, shorthand for “Trump always chickens out.”
“Investors strongly believe — and have been conditioned to believe — he’s going to stand down, find a way to pivot, declare victory and move on,” Zandi said.
Trump has pushed back on the notion of backing down, framing his brinkmanship as a savvy negotiating tactic.
Economists pointed to a recent example of this dynamic: in April 2025 during so-called liberation day, when the Trump administration levied a host of tariffs on U.S. trading partners.
Within days — after the stock market had cratered more than 12% — Trump announced a 90-day pause on those tariffs. Stocks then saw one of their biggest daily rallies in history following Trump’s reversal.
Investors remember that Trump often de-escalates geopolitical shocks — which is why they’ve seized on positive headlines that hint at progress in peace talks, for example, Seydl said.
“The markets have memory,” Seydl said.
AI stocks and the ‘tech boom’
Traders celebrating at the New York Stock Exchange on April 15, 2026, as the S&P 500 closed above the 7,000 level for the first time.
NYSE
There are other factors underpinning market resilience during wartime, economists said.
One is the investors’ enthusiasm for artificial intelligence and technology stocks, which account for almost half of the S&P 500’s market capitalization, Zandi said.
“Those stocks run on their own dynamic independent of anything, including the war in Iran,” Zandi said. “I think we would have been down a lot more and it would have been harder for us to recover had it not been for the very, very optimistic perspectives on AI.”
We’re in the middle of a “tech boom” — and investors are likely to remain optimistic until they think the tech cycle has run its course, Seydl said.
More broadly, stock investors are essentially making a bet on the future earnings growth of a company — and the earnings backdrop has been “pretty solid,” Seydl said.
Consumer spending appears to be stable, for example, economists said. And companies are getting a boost to their after-tax earnings from the GOP’s so-called “big beautiful bill,” which, among other things, made it easier to write off investments upfront and therefore reduce their tax liability, Zandi said.
Going forward
Experts said there will be an economic hit from the Iran war, though.
“Despite the recent news of a temporary ceasefire, some damage is already done, and the downside risks remain elevated,” Pierre-Olivier Gourinchas, director of research at the International Monetary Fund, wrote Tuesday.
A protracted conflict risks deep and global economic pain, he wrote.
Even if the conflict is short-lived — as the broad market expects — stocks are unlikely to march much higher until it’s clear the U.S. is on the other side of the war and its economic fallout, Zandi said.
If investors are incorrect, and President Trump doesn’t back down or quickly extricate the U.S. from the war, the stock market may see a “full-blown correction” or worse, Zandi said. A stock market correction is a decline of at least 10% from recent highs.
“Everyone thinks they know what the script is,” Zandi said. “Now they just need to follow the script. If they don’t, the market will have some real problems.”
The uncertainty provides yet another example of why the average investor with a long time horizon should stick to their investment plan and ignore the noise, experts said.
“Trying to time the market is very difficult if not impossible for the average investor,” Seydl said. “It’s better to take a long-term perspective and ride out bouts of volatility.”
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