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The Social Security System … is it ready to dry up and die?

Friday Finance: The Death of Social Security

“Experts say …” is the opening line of nearly every headline about Social Security these days. And the latest statement that experts espouse is that about the Death of Social Security! More specifically the experts predict the money in the Social Security pool will dry up by 2034 (that is only 7 1/2 years away from today – Sept., 2026). Several urgent questions come to mind: Are these forecasters really experts? What are the challenges to resuscitating our Social Security system? And please state in plain English the ways to amend the entitlement and to restore its solvency! Let’s start by demanding financial literate politicians pick up the task and make changes. And how about doing it now!!??!!

Lately some prognosticators have been shouting that Social Security is not dying, but it is simply facing a funding shortfall. According to the 2026 Social Security Trustees Report, the combined trust funds (OAIS and DI) are projected to be depleted in 2034. Without congressional action by that time, incoming payroll taxes would still be able to cover about 83% of promised benefits. What does that mean, exactly?

Q: And how did we get here?

  • The Short Answer is that our Social Security safety net is currently paying out more in benefits than it takes into the system. That imbalance was of own making, because of the massive Baby Boomer generation (those born from 1946 – 1964). The BOOMERS are retiring at a rate of 10,000 a day and that rate of retirement will continue for the next decade. On top of that phenomenon, there are fewer workers paying into the system for every retiree taking their share out.
  • The Longer Answer is that during the Great Depression, nearly 50% of American seniors lived in poverty. As agents of change, members of the Roosevelt administration, led by Frances Perkins, the Secretary of Labor, wanted to build a program of family support and personal savings that would last a lifetime. The funding was derived from taxes paid by both workers and their employees. The Federal program rolled out in January, 1937 and started paying regular monthly benefits in January, 1940.
    • The original retirement age was set at 65, while the life expectancy was roughly 58 for men and 62 for women; however, if an American survived childhood diseases and reached adulthood in the 1930s, their chances of living past 65 were high. Millions of early participants lived long lives and collected monthly checks to well into their 70s and 80s.
    • The age of 65 was chosen because that matched standard private retirement practice and actuarial norms of that era.

The Funds Depletion Timeline

  • Retirement Fund (OASI): Projected to be depleted in 2032. Therefore in 8 years the OASI could only pay out about 78% of scheduled benefits, which means that every recipient after that date would get a 22% haircut to future payouts.
  • Disability Fund (DI): This fund is projected to remain fully funded throughout the 75-year projection period.
  • Combined Funds: If Congress passes legislation to merge the two trust funds, full benefits can be paid for two additional years, or until 2034.

How Could It Be Fixed NOW?

If the goal is to prevent the cuts to future benefits, and to extend the useful life of the Social Security program, then Congress members have several options at their disposal. NOTE: All four of these fixes can be effective. And any remedy will likely involve a mix of the following strategies:

  1. Raising the Cap: Increasing or eliminating the cap on wages that are subject to Social Security payroll taxes (currently, only the first $168,600 of earnings is taxed as of 2024). This earnings/wages cap can be raised to $250,000.
  2. Increasing the Tax Rate: Slightly raising the current 6.2% payroll tax rate for both employees and employers. Even a small change, say to 6.5%, could make a significant difference.
  3. Adjusting the Retirement Age: Slowly raising the Full Retirement Age (currently 67 for those born in 1960 or later) to account for longer lifespans. The age has been adjusted several times in the past and could move to 70 years of age.
  4. Changing the Formula: Altering how the initial benefit calculations or how Cost-of-Living Adjustments (COLA) are determined could help ease the issues with Social Security.

Historically, Congress has stepped in to adjust the program’s finances before a major crisis, and lawmakers are expected to negotiate a legislative fix before the 2034 deadline to ensure full benefits continue to be paid.

If you are currently planning for retirement and want to understand how your potential payouts might be affected, here are some steps that can help you:

  • Estimate your current Social Security benefits using official SSA calculators
  • Compare how delaying your claim to age 70 affects your monthly payout
  • Review your estimated taxable income in retirement with an accountant to see if you have what you need to sustain your lifestyle during retirement.

Longer Term Thinking

One topic of solutions to the Social Security shortfall is more systemic: increase the number of people who are paying into the system. And how would we accomplish that step? By relaxing our immigation restrictions and getting more people on the payroll of companies, all of whom will be paying into the Social Security System. The employers AND employees would be paying into the system with their annual wages, known as FICA taxes (short for Federal Insurance Contributions Act). The envigorated system would include the four fixes mentioned above: 1) a higher payroll tax cap, 2) an increased tax rate, 3) an adjusted retirement age, and 4) a changed formula for benefits calculations.

This longer term solution seems to be too sensitive a topic to many politicians who wouldn’t dare touch the third rail in DC politics. Who wants to be accused of tampering with the Social Security dollars that go to their grandmothers? Americans, who have amnesia as to how their families came to this country in the first place, have lost sight of the situation we face. We are fretting more about illegal immigration than about safe, legal, and welcoming policies of entry into this country with understandable pathways to citizenship. Yes, that calls for a long-term solution, AND it calls for courage on the part of our representatives in Washington, DC to pick up the flag and start waving it again for all of us!