Social Security benefits in the United States are set to increase for millions of recipients in 2027, but the cost-of-living adjustment does not resolve the program’s long-term financial challenges. The latest official report from the Social Security and Medicare trust fund trustees projects that the reserves used to pay retirement and survivors benefits will be depleted in the fourth quarter of 2032. The Social Security Administration (SSA) announced on October 14 that benefits will increase by 3.6% in 2027, with the adjustment taking effect for payments in January. The average monthly retirement benefit will rise by approximately $75. However, the trustees’ annual report warns that, without legislative changes, continuing income would cover only 78% of scheduled benefits after the retirement and survivors fund exhausts its reserves. Social Security: why the trust fund could run short of reserves by 2032 The 2026 report from the Social Security and Medicare trust fund trustees projects that the Old-Age and Survivors Insurance (OASI) Trust Fund, which pays retirement and survivors benefits, will be able to cover 100% of scheduled benefits through the fourth quarter of 2032. That date is one quarter earlier than projected in the previous year’s report. The warning does not mean Social Security will disappear or that payments will automatically stop in 2032. Instead, the program’s accumulated reserves are being used to cover the gap between income and expenses. Once those reserves are depleted, ongoing revenue would no longer be sufficient to pay every benefit scheduled under current law. According to the official report, the fund would then have enough continuing income to pay 78% of scheduled benefits. The shortfall would require a legislative solution to prevent benefit payments from being reduced. The outlook is different when the retirement and survivors fund is considered together with the Disability Insurance Trust Fund. Under that combined projection, reserves would be depleted in the third quarter of 2034, when continuing income would cover 83% of scheduled benefits. However, the two funds are legally separate and cannot be combined without a change in the law. The 2027 raise will not solve Social Security’s funding shortfall The annual cost-of-living adjustment (COLA) is based on changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) between the third quarter of one year and the same quarter of the following year. For 2027, the SSA set a 3.6% increase for Social Security and Supplemental Security Income (SSI) recipients. Adjusted payments for nearly 72 million Social Security beneficiaries will begin in January 2027, while the increase for approximately 7.3 million SSI recipients will start on December 31, 2026. Although the adjustment is designed to help offset rising prices, it serves a different purpose from the program’s funding mechanisms. The COLA adjusts benefits to account for inflation, but it does not guarantee that the program will have enough revenue to sustain those payments over the long term. The trustees’ report states that Social Security’s total costs have exceeded its total income since 2021 and are projected to remain higher throughout the forecast period. In 2025, combined expenses for the retirement, survivors and disability funds exceeded their income by approximately $160.2 billion. What could happen to benefits if Congress does not act? Depleted reserves do not mean that Social Security will have no money coming in. The program is financed primarily through payroll taxes, contributions from workers and employers, taxes on certain benefits and interest earned on accumulated reserves. The challenge is that this revenue would not be sufficient to cover all scheduled benefits under current law. The trustees therefore say legislative action will be needed to prevent benefit reductions once the reserves are depleted. The 2026 report also identifies demographic and tax-related factors affecting the program’s financial outlook. These include a lower projected fertility rate, reduced estimates of net immigration and tax changes expected to reduce future revenue from taxes on Social Security benefits. The trustees emphasize that acting sooner would give lawmakers more options and allow more time to phase in potential changes, giving the public a greater opportunity to prepare.