Is Social Security sustainable?

In 2022, Social Security made up 19% of the federal government’s expenditures, or $1.2 trillion.

Nearly 67 million Americans^[1] rely on Social Security payments, which grow daily as older Americans retire.

However, Social Security is facing potential financial troubles. Declining birth rates mean fewer people are paying for Social Security for a growing elderly population, making the program unsustainable.

Social Security won’t necessarily run out, but it is unclear what actions the program would need to take if it became insolvent. Congress can avoid insolvency by taking action, and soon.

Why is Social Security in trouble?

People today are having fewer children than before. As a result, the median age of the US citizen has risen from its 1970 median of about 28 years old to roughly 39 years old in 2020.

Combined with increasing life expectancy in the US, the decline in birth rates has led to fewer young adults contributing to Social Security benefits, which more retirees need. As the number of older Americans continues to outpace the number of young Americans, Social Security becomes less financially sustainable.

Baby boomers began qualifying for Social Security in 2008. Between then and 2022, the number of Social Security recipients has grown by over 15 million.

This combination of factors, along with other mounting issues such as declining returns on Social Security investments, mean that the program is projected to run out of funding in the coming years.

When will funding for Social Security run out?

According to projections from the Social Security Administration, the program is expected to become insolvent by 2035.

It’s important to note that Social Security is made up of two programs: the Old-Age and Survivors Insurance (OASI) Trust Fund and the Disability Insurance Trust Fund.^[2]

While the Disability Insurance Trust Fund is expected to remain solvent for the next 75 years, the OASI Trust Fund could become depleted by 2034. If money from the two funds were combined, they could run out by 2035.

These combined funds have been slowly depleted since 2010, largely due to the aging baby boomer population and weak economic growth following the Great Recession.

According to projections, the combined Social Security trust funds may be depleted by 2035. After that, it's estimated that Social Security payments may only be able to cover 80% of the scheduled benefits.

In other words, people who rely on Social Security in the future could potentially see their payments reduced by 20% from what they had been told to expect.

All these projections assume that current laws and spending patterns will remain unchanged. The earlier the government implements reforms ensuring Social Security remains solvent, the longer the program can continue to operate at its current payout schedule.

What are some potential solutions to the Social Security issue?

It is important to note that this does not mean that Social Security will go under. However, it does mean that, in the case of trust fund insolvency, keeping it alive would require substantial reductions in Social Security benefits, substantial increases in tax revenues, or a combination.

Congress could restore balance by reducing scheduled benefits by about 20% after Social Security is projected to run out in 2035. This change would match Social Security income to revenues generated by payroll taxes.^[3]

Alternatively, Congress could raise the payroll tax rate from 12.4% to 15.6% and incrementally increase the rate over the following decades as necessary.

Other potential solutions include raising the national retirement age to delay when people begin collecting benefits, eliminating benefits for wealthy retirees, or privatizing the program and letting workers invest their payroll taxes themselves.

The sooner action is taken to either reduce government expenditures or increase revenues, the better the chances of preserving Social Security as it exists today.

To learn more about government finance, read about the US debt ceiling and the growing national debt. Get the data directly to your inbox by subscribing to our newsletter.