Millions of Americans are getting a raise from Social Security next year. But the bigger story may be what happens a few years later, when the program’s main trust fund is projected to run dry.
The Social Security Administration (SSA) announced a 3.6% cost-of-living adjustment (COLA) for 2027 on Oct. 14, raising monthly payments as the program faces a long-term funding shortfall that could trigger automatic benefit cuts in the early 2030s.
The adjustment, which takes effect in January 2027 for nearly 72 million Social Security beneficiaries, will raise the average retirement benefit by about $75 a month, to an estimated $2,170 from $2,095, according to the SSA’s 2027 COLA fact sheet. Higher payments for about 7.3 million people receiving Supplemental Security Income (SSI) will begin on Dec. 31, 2026. Some people receive both types of benefits; in all, the agency says the increase will reach 76 million Americans.
COLAs are designed to help Social Security and SSI payments keep pace with inflation. The adjustment is based on changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), as measured by the Bureau of Labor Statistics. Still, some retirees and advocates say this year’s bump isn’t enough to cover rising costs.
When Social Security’s trust funds are projected to run out
The increase comes as the program faces mounting financial pressure. According to the 2026 Social Security trustees report, the Old-Age and Survivors Insurance (OASI) Trust Fund, which pays retirement and survivors benefits, is projected to run out of reserves in the fourth quarter of 2032.
At that point, incoming revenue would cover an estimated 78% of scheduled benefits—effectively a 22% cut—with that share projected to decline to 62% by 2100 if lawmakers don’t change the program’s financing.
The combined Old-Age and Survivors Insurance and Disability Insurance (OASDI) trust funds are projected to be depleted in the third quarter of 2034. At that point, incoming revenue would cover 83% of scheduled benefits, a share projected to decline to 65% by 2100.
Trust fund depletion would not mean Social Security stops collecting payroll taxes or paying benefits. Instead, without additional revenue or legislative changes, the program would only be able to pay the share of scheduled benefits that its incoming revenue covers. Budget watchdogs have warned that the program is on a “collision course toward insolvency.”
Social Security commissioner says the program will last another 90 years
Social Security Commissioner Frank Bisignano, who also serves as CEO of the IRS, said the program would continue for decades despite its funding challenges.
“This is a long journey. It’s 90 years old, and it’ll be around for another 90 years. The president has promised to protect and preserve and that’s what we’re doing,” Bisignano said in an Oct. 12 interview with CNBC’s “Squawk Box” ahead of the COLA announcement.
Bisignano, a former Wall Street CEO who has been overhauling how the agency operates, also said SSA was working to fix erroneous records. “When you have 30 million records that are wrong, [the job] is fix the place,” he said, adding that the agency had cleaned up about 10% of them, according to Fox.
He declined to discuss potential changes to benefits or the taxes that finance the program.
The trustees’ projections underscore the challenge facing policymakers: without congressional action, the program’s incoming revenue won’t be enough to cover all scheduled benefits once its reserves are depleted.
How Social Security benefit cuts could be avoided
Congress could close the funding shortfall through higher revenue, benefit changes, or a combination of reforms. The trustees’ report does not prescribe a specific solution.
One option would be to raise payroll taxes. Social Security is primarily financed through a 12.4% payroll tax on covered earnings, split equally between workers and employers at 6.2% each, up to an annual cap. That taxable maximum will rise to $192,300 in 2027 from $184,500 in 2026, according to the SSA.
An analysis by Advancing American Freedom, a conservative advocacy group, estimates that maintaining scheduled benefits through higher payroll taxes alone would require a combined rate of 17.3% in 2034—a roughly 40% increase from the current 12.4%. Acting sooner would cost less: Raising the rate immediately to 16.65%, a 34% increase, would prevent any benefit reductions, according to the group.
The organization also estimates Social Security faces a $29.3 trillion long-term funding shortfall, or about $215,000 per household.
“Social Security’s $29.3 trillion shortfall ($215,000 per household) won’t fix itself,” said Rachel Greszler, a senior research fellow at Advancing American Freedom. “Lawmakers can either allow automatic 22% benefit cuts in 2032 or enact gradual, targeted reforms now to protect lower- and middle-income retirees, strengthen the economy, and demonstrate fiscal fortitude before markets force abrupt action.”
The estimates illustrate the trade-offs lawmakers face as they weigh how to shore up the program’s finances while ensuring future retirees continue to receive benefits—a debate that’s growing more urgent as the national debt climbs past $40 trillion.
This story was originally featured on Fortune.com