The Future of Social Security

How we got here

One reason Americans get angry at talk of lower Social Security payments is that most of us have been paying into the system ever since our first jobs. And it’s not a trivial amount: Fully 12.4 percent of your gross income has gone to Social Security each paycheck by way of the Old-Age, Survivors, and Disability Insurance (OASDI) payroll tax.

If you work for someone else, it’s split evenly: You pay 6.2 percent of your income, and your employer chips in the other 6.2 percent. The self-employed pay the full freight. The amount of wages subject to the payroll tax is capped and adjusted annually for national wage trends. In 2024, a worker pays the tax on wages up to $168,600. For a self-employed worker clearing that amount or more, that means an annual OASDI tax bill of $20,906.

After the Social Security Administration pays beneficiaries, any tax dollars that are left over go into the trust funds, to be tapped when taxes coming into the system aren’t enough to cover ongoing benefit payments.

E+, IStock / Getty Images

That time is now. With expenses outstripping revenue, the SSA has begun drawing on the trust funds to fully cover benefit payments. Absent any major changes, the funds — which peaked at about $2.91 trillion in 2021 — will run dry in 2035, according to the agency’s latest projections. That’s 23 years earlier than the SSA estimated when the system was last overhauled in 1983.

How did we get here? Demographics explain a good deal: By the end of the decade, the entirety of the boomer generation — some 70 million Americans born between 1946 and 1964 — will have reached the traditional retirement age of 65. By 2030, the SSA estimates, nearly 70.5 million people will be collecting Social Security, nearly double the total in 1980. 

That growth was long predicted. What wasn’t known as accurately was how much longer those boomers would live. “From 1940 to 2019, life expectancies at age 65 have increased by about 6.5 years,” says Amy Kemp, chair of the Social Security Committee of the American Academy of Actuaries.

The impact: Many workers will be receiving benefits for a longer period. And those with higher incomes, who are generally those who receive higher benefit amounts, tend to live longer on average.

At the same time, there has been a continued decline in the nation’s birth rate; that means fewer younger workers to support the benefits promised to older workers. In 1955, there were more than eight workers supporting each Social Security beneficiary. Now there are 2.8 workers per beneficiary, and in 2035, the SSA projects, there will be 2.3.

Additionally, the country’s growing income inequality has had a negative effect on the amount of payroll taxes going into the trust funds, as wages above the payroll tax cap have grown much faster than wages under the cap.

All this doesn’t mean that the Social Security program will end in 2035.

“People could be erroneously thinking that all benefits will be cut off at that point,” Kemp says. “But once the reserve is depleted, benefits will still be payable," though only about 83 percent will be covered by the payroll taxes coming into the system. Even if nothing is done, Social Security is projected to still be able to pay roughly three-quarters of promised benefits for the remainder of the century.

Still, the springtime release of an annual report from the trustees who oversee the Social Security trust funds typically causes a flurry of foreboding news coverage, and survey after survey shows that Americans are doubtful about the program’s future, particularly younger generations. In a 2023 poll by the Nationwide Retirement Institute, 45 percent of Generation Z respondents and 39 percent of millennials said they do not expect to get a dime from Social Security, compared to 25 percent of Gen Xers and 10 percent of boomers.

Adults born after 1981 “are more likely to assume future benefits will be nonexistent, while families who are five to 10 years from claiming Social Security assume benefits will be reduced or means-tested,” notes Cody Garrett, a financial planner in Pearland, Texas.

Difficult choices

So what needs to happen to secure Social Security for the long term? Some variables are out of the direct control of the SSA or Congress, such as the economy, wages, life expectancy and birth rates. But if projections hold more or less true, on paper the options are fairly simple: Congress will have to raise taxes, modify benefits or do some of both. Those options come down to any variation of a handful of leading approaches discussed by policymakers. Here are several, starting with ways to bring more money into the system.

• Adjust the cap. This year, someone with $1 million in work income would pay the same amount of OASDI tax as someone with $168,600 in wages. Eliminating the taxable wage cap would keep the trust funds solvent until 2060, according to Social Security. Other, less drastic approaches could be simply raising the cap to a higher level or creating a payroll tax “doughnut hole,” with income between the current cap and a second, higher threshold (say, $400,000) not subject to the payroll tax.
• Increase payroll tax rates. As noted, the current rate is 12.4 percent. Some propose raising that incrementally — to, say, 14.4 percent — as a way to bring additional dollars into the trust funds. But some experts note that such tax increases would be hardest felt by those who earn lower wages or are self-employed.
• Broaden the base. Not all state and local employees are covered by Social Security; some have only public pension coverage. Bringing all newly hired state and local workers into the Social Security system and taxing their wages accordingly would create a large influx of cash, although it would mean more beneficiaries to pay later. But this isn’t a simple solution either, as it could pose challenges to pension plans operated on behalf of local governments.
• Broaden the definition of income. Certain forms of workplace remuneration, such as the value of employer-sponsored group health insurance or contributions to a flexible spending account, are not subject to SSA payroll taxes. Eliminating these exclusions would increase Social Security’s revenue. However, the SSA projects that this would only extend the trust funds’ solvency by a few years. A significantly larger target, and so more politically challenging, would be to levy a Social Security tax on annual investment income, as opposed to just taxing work-related income.

The other side of the coin is implementing changes that reduce benefits to certain Social Security beneficiaries. Here are several approaches that have been floated.

• Introduce more progressivity. Typically referred to as “means testing,” this approach calls for adjusting the size of your Social Security payments based on your wages, wealth or income. The concept is to protect people below a certain annual income or wage level so they get full benefits; those who are financially healthier would sacrifice some or all of their Social Security payments.
• Cut benefits for new recipients. Another approach would be to pay newly eligible retirees a little less per month than promised. Cutting payments to new retirees by 5 percent, starting in 2025, would extend the life of the trust funds only to 2036, according to a 2023 study by the SSA. If your monthly payment was to be $2,000, a cut of that size would bring it to $1,900.
• Reduce the cost-of-living adjustment (COLA). The SSA annually adjusts benefit payments to account for inflation. The yardstick used is the government’s consumer price index for urban wage earners and clerical workers, or CPI-W, which factors in price increases for everything from apples to gasoline to rent. Proposals have been floated to switch to different inflation measures, or to simply reduce the COLA outright. But doing so would be highly unpopular. Typically, COLAs already come in a bit below the general inflation rate; reducing them would compound the impact of rising prices on beneficiaries over time, without doing much to change the long-term financial health of the program.
• Change benefit calculations. Adjusting the complex formulas used to determine your Social Security payments could result in modestly lower benefits but help increase the life of the trust funds. Here’s an example: The SSA uses your highest 35 years of salary history to determine your retirement benefit. Using a higher number of years, such as 38 or 40, would reduce a beneficiary’s average annual earnings and, as a result, the size of his or her monthly benefit.
• Up the retirement age. You can start taking Social Security, with reduced benefits, at age 62. Wait until your full retirement age (currently between 66 and 67 depending on your year of birth) and you qualify for your full benefit. Gradually increasing one or both thresholds would ease some of the strain on the trust funds. But it would also hurt those retirees who can’t wait longer to get Social Security. “There are a lot of jobs where people’s bodies just wear out,” says Ribble, the former congressman.

Protestors rallied against the privatization of Social Security on Capitol Hill in Washington, D.C., on Tuesday, April 26, 2005.

Then there are the more radical ideas. Some have suggested scrapping the entire program and converting it to individual accounts similar to 401(k) plans, in which you contribute some or all of your current payroll taxes to a self-managed retirement account invested in stocks, bonds and other securities; you would bear the risks and rewards of your choices.

President George W. Bush proposed such a plan in 2005, but it was widely rejected by the American public. Experts also note that such a program would mean the trust funds would be depleted sooner, putting current benefits at even greater risk.

Getting it right

Though many of its provisions provoked vigorous debate, the 1983 legislation negotiated between House Speaker Tip O’Neill and President Ronald Reagan, which has kept the program solvent over the past four decades, ultimately won large bipartisan support.

“The OASI trust fund actually reached the point where technically, it would have become depleted in 1982,” says SSA chief actuary Stephen Goss, referring to the part of Social Security’s coffers that pays out retirement and survivor benefits. (The other part, called the DI fund, pays out disability benefits.) Fortunately, some technical maneuvers allowed full payments to be made until the Social Security Amendments of 1983 were signed into law.

That bill gradually raised full retirement age for beneficiaries to 67, levied taxes on Social Security payments for some beneficiaries, and increased the payroll-tax rate, all of which would be difficult to reach consensus on in Congress today.

Legislators in Congress still routinely propose bills to alter Social Security, ranging from small adjustments to substantive overhauls. Dozens of members have introduced such bills in the last few years; to date, none has moved to a full vote.

Standing on one leg?

Americans rely on it. It’s long been cited that Social Security was meant to provide just 40 percent of your retirement income. But according to SSA data, 12 percent of men and 15 percent of women on Social Security rely on it for 90 percent or more of their income. Even a modest reduction in benefits would hit them hard. And 37 percent of men and 42 percent of women on Social Security get 50 percent or more of their income from the program.

With around 67 million people today receiving benefits, that means tens of millions of Americans depend heavily on the program. And already, their payments aren’t high. The average retirement benefit from Social Security in March 2024 was about $1,913 a month, or just under $23,000 a year. The median rent for an apartment in the U.S. that month was $1,987, according to Rent.com.

“When I did my research on it, probably the hardest-hit recipient of Social Security was a widow who has outlived her family savings and is now living in old age, strictly on Social Security,” Ribble says. “She’s trying to live off a $700- or $800-a-month payment.”


Even though those who rely on Social Security alone are struggling, and the trust funds face depletion, lawmakers haven’t acted — yet. Still, if history is any guide, there’s reason to hope that Congress will find a solution. Says Social Security’s Goss: “We’ve never reached the point where we depleted the reserves and had to reduce benefits.”