Check Engine Light

It’s summer, so the temperatures are rising in America, adding stress to automobiles motoring down highways. Modern cars have long had dashboards that communicate their health to the driver. And in the event the drivers aren’t watching closely enough, manufacturers have added “dummy lights.” These tell you to check the engine, or that the temperature of the engine is too hot, or that tire pressure is waning, or that the oil pressure isn’t right. Drivers heeding these warnings are often well served by a car that will last longer than if they’d ignored them.

Similarly, warning lights are flashing for America’s Social Security. According to the 2026 Trustees Report (see their press release here), the main retirement trust fund is projected to run out of reserves in late 2032. That deadline used to sound so far down the road, but now we’re getting close to this exit, and it is well short of the desired destination for most retirees. This report suggests that ongoing payroll taxes would only cover 78% of scheduled benefits. Said differently, that would be an automatic pay cut of 22% if Congress does nothing.

Doing nothing doesn’t seem likely, however. Cutting the pay of a large voting cohort who tend to vote with a high turnout percentage doesn’t seem like a plausible election strategy for those looking to be reelected. Over the next few years, Atlas expects numerous solutions to be proposed. They may choose to raise the payroll tax rate or broaden the tax base by lifting the cap on wages subject to Social Security tax. For pre-retirees, they may increase the full retirement age.  Or they could find another index for cost-of-living adjustments, one which tends to grow less than the Consumer Price Index that is used currently.

A glowing check engine light for Social Security is not the same as running out of gas. Fuel will continue to be fed into this tank as long as other Americans are working. But like a flashing light on the dashboard, ignoring it over time can lead to more costly problems down the road. The longer policymakers wait, the fewer and more difficult options become. Addressing it as soon as possible will allow for small, more gradual adjustments instead of it feeling like retirees have hit a major pothole.