How to fix Social Security's pending shortfall, according to advisors

The need to tackle Social Security's funding challenges has never been more pressing. The trust fund is projected to be depleted by 2034, according to this year's Trustees Report, released last week by the Social Security Administration.

The agency's new commissioner, Frank Bisignano, said last month that he intends to address the program's troubles.

"There are lots of senators that I've heard from that all have ideas about how to fix it," Bisignano told CBS News. "So we need to just go to work on how to fix it."

READ MORE: How to fix Social Security's pending shortfall, according to advisors

Financial advisors and other experts also have a few ideas in mind to shore up the program, which is funded through a combination of payroll taxes and trust fund payouts.

No shortage of solutions

Advisors say that the program has three likely paths forward: increasing the percentage of Social Security taxes that all workers pay, raising the retirement age or raising — or even eliminating — the Federal Insurance Contributions Act (FICA) cap.

Currently, FICA limits the maximum amount of income subject to Social Security taxes —  $176,100 in 2025. Any income that exceeds that threshold is still subject to Medicare taxes, but is not subject to Social Security taxes. Advisors like Byrke Sestok, a financial advisor at MONECO Advisors in Fairfield, Connecticut, think that the cap might change as the agency looks to address its funding challenges.

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"I do think that we will see a raise, if not an eventual elimination of the income cap for paying into Social Security," Sestok said. "I think that that's probably a palatable way that politicians could move the needle, and it would also fund Social Security a heck of a lot better."

Eliminating the cap could boost the agency's income, but it could also see resistance from high earners who see the contributions as lopsided.

"I get it. Social Security income is also capped. There is a maximum you can potentially earn from Social Security," Sestok said. "But that, to me, would be a good way to modify it."

If the agency isn't able to increase income through a change in Social Security payroll taxes, it will have to reduce the scale of payments going out. Advisors say the agency could achieve that in a couple of ways, including raising the retirement age.

"We already have the example, right? We went from age 65 for everybody to opening up choice and allowing for early retirement at age 62 and delaying until age 70, with full retirement age gradually moving from 65 to 67," Sestok said. "That blueprint is already there for them to just easily say, 'Well, 70 is not optional anymore. We're going to transition people who are more than 20 years away from retirement to age 70 as their earliest start date.'"

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"To me, that is just kind of the logical progression, if politicians are going to change how Social Security is administered," he added.

Making that change would be easier for some workers than others. While remote jobs are helping some people work later in their lives, not all jobs are as accommodating.

A wholly different view of Social Security

Advisors like Charles "Chuck" Failla, the founder of Sovereign Financial Group in Stamford, Connecticut, take a more reformist view of the program.

"It's got to be an insurance policy, right? I cannot collect on my homeowner's insurance if my house doesn't burn down. So, if you look at it with that analogy, imagine we all pay $2,000 a year, and every 10 years, we put in a claim to get a brand new house, even though it didn't burn down. How long will that system last? Not very long at all," Failla said. "But that's kind of what we're doing here. So what I would say is it should be more like unemployment insurance, where we all pay in a little tiny bit, but you only collect unemployment insurance when you can prove you are unemployed. With Social Security, we should all pay in a little bit … but you only collect Social Security if you're destitute, like Medicaid."

While means-testing Social Security would be a significant departure from how the system has historically functioned, Failla's not alone in his thinking.

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Researchers at the American Enterprise Institute, a right-leaning think tank in Washington, D.C., have proposed a similar solution to addressing the program's funding shortfalls.

Their plan would cap benefits to ensure full scheduled payments for about half of retirees, while progressively reducing benefits for the higher-income half. This approach aims to avoid increasing elderly poverty rates due to Social Security's insolvency and would result in about 80% of beneficiaries experiencing smaller reductions than if across-the-board cuts were applied, the researchers wrote.

As opposed to Failla's proposal, AEI researchers say that their plan would only take effect if Social Security's trust fund were depleted, at which point the agency would be unable to make full scheduled payments to all beneficiaries.

Congress will likely act to prevent any shortfall

Exactly which solutions the agency decides to implement is an open question. But even skeptical advisors say it's unlikely that the government won't act before benefits are reduced.

"To use one of my favorite expressions from Winston Churchill: America will always do the right thing after exhausting every other option," Failla said. "And I think that's exactly where we are right now with Social Security."