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9 Facts About Social Security and the Need to Strengthen It
Social Security is an essential program for millions of Americans, but it’s at risk if lawmakers fail to take action to reform the program. Below are nine key facts about Social Security, why it’s in financial trouble, and what we can do to strengthen it for the long run.
Social Security provides vital economic security to vulnerable older Americans.
Many low-income seniors rely on Social Security for most of their annual income, according to the Social Security Administration. In fact, the bottom 40 percent of lifetime earners will receive over 80 percent of their retirement income through the program. In 2021, 10 percent of adults age 65 or older had income below the poverty line; without Social Security, about four times as many people (22 million) would fall below the poverty line.
America is getting older, and that’s straining the system.
Social Security was designed as a “pay-as-you-go” system, with current employers and employees funding the trust funds, providing benefits to Social Security recipients. However, the nation’s changing demographics have caused the number of workers relative to the number of beneficiaries to decline — slipping from 4.3 to 2.8 over the past 60 years. The ongoing retirement of the Baby Boomer generation will exacerbate that trend.
Social Security’s asset reserves are at risk of depletion in the next decade.
Cash flows for Social Security flow through two trust funds:
- The Old-Age and Survivors Insurance (OASI) Trust Fund, which pays benefits to retired-worker (old-age) beneficiaries and their spouses and children and survivors of deceased insured workers.
- The Disability Insurance (DI) Trust Fund, which pays monthly benefits to disabled worker beneficiaries and their spouses and children.
According to the Social Security Trustees, the retirement program will soon be depleted. The OASI Trust Fund will be unable to pay full benefits starting in 2033, while the DI trust is projected to be funded through the 75-year projection period. The combined trust funds are projected to become depleted in 2034.
Doing nothing means an automatic cut to benefits.
The Social Security Trustees reported earlier this year – as it has been doing for many years — that the program faces serious financial shortfalls. In fact, if lawmakers fail to act by 2034, there would be a 20 percent benefit cut to Social Security’s 66 million beneficiaries.
Social Security will account for 21 percent of the federal budget in 2023.
Spending on Social Security will total $1.3 trillion in 2023, making it the single largest component of federal spending.
Most of Social Security’s income comes from payroll taxes.
Employers and employees each pay 6.2 percent of wages to fund Social Security. Earnings subject to this tax are capped at $160,200 in 2023. In 2022, the latest year for which full-year data are available, 91 percent of Social Security’s receipts came from that dedicated payroll tax. The remaining 9 percent of the program’s income comes from interest earnings and the taxation of benefits for higher-income beneficiaries.
Every year, Social Security pays out more than it takes in.
Primarily due to an aging population and revenues that haven’t been able to keep pace with expenses, Social Security has been incurring an annual deficit since 2009. In 2022, Social Security spent $147 billion more than it brought in, and that gap is expected to widen to $670 billion in 2033. In total, Social Security is projected to incur cash deficits of $4.5 trillion over the next decade.
Younger generations would face the largest reductions in benefits if Social Security is depleted.
Americans born in the 1970s, 80s, and 90s stand to have their lifetime benefits reduced by 25 percent or more, while those born in the 1950s and 60s would see their benefits decreased by 9 and 19 percent, respectively.
The sooner lawmakers act, the better — and there are many well-known solutions.
Policymakers still have time to correct the imbalance between the program’s spending and revenues to secure the program's future. However, delaying reforms to the program would require larger changes. For example, if policymakers wait until 2034 to take action, the tax increases or benefit reductions needed to stabilize the program would be nearly 20 percent larger than if action were taken today.
Social Security provides a safety net for tens of millions of Americans, many of whom are among the country's most vulnerable. With trust fund exhaustion just 10 years away, now is the time for lawmakers to address the imbalance of spending and revenues driving these yearly shortfalls. Numerous options are available, and the quicker reforms are enacted, the easier the burden will be.
Related: Without Reform, Social Security Could Become Depleted Within the Next Decade