Is Social Security Really Going Broke?
The program’s money woes are real, but there’s more to the story
Social Security touches almost all of our lives, and for nearly a century it’s helped keep people out of poverty and let them retire with dignity. With all the dire reporting about how the program will be insolvent any minute now, it’s easy to get caught up in worry about the future. This piece from data scientist and The Preamble contributor Andrea Jones-Rooy cuts through the noise and explains that while Social Security undoubtedly faces some problems, the numbers tell a story more nuanced than what you might’ve heard. Take a look.
—Sharon
There’s no shortage of headlines out there shouting about how the clock is ticking on Social Security, with language warning that the program’s funding might “run out,” “run dry,” or be “depleted” by the early to mid 2030s. But what do these claims that Social Security will become “insolvent” or “go broke” actually mean for Americans? And is there anything we can do about it?
The short answers to these questions are “It’s complicated” and “Yes.” But here at The Preamble we prefer a bit more nuance. So here we go!
Wait, what is Social Security?
Social Security is one of the longest-running programs of the federal government. Established in 1935 under President Franklin D. Roosevelt, it’s a social insurance program intended to protect Americans from at least some of the “hazards and vicissitudes of life,” as FDR explained. Social Security is designed to support people who are too old to work or who cannot work due to disability, as well as the families of those people.
Throughout their lives, Americans will commonly interact with Social Security by paying into the program, or eventually by receiving benefits. If you’ve ever received a paycheck in the United States, you’ve likely noticed that 6.2% of your earnings are withheld for Social Security. This amount is withheld for all wages up to $184,500 per year. If you earn more than that in a year, your remaining income is not subject to Social Security withholding. About 93% of the US workforce, or nearly 183 million workers, contribute to Social Security in this way.
More than 75 million people, or about 22% of Americans, currently receive benefits from Social Security. Most (78%) of these beneficiaries are Americans who are 65 years of age or older; some (15%) are Americans under the age of 65 who are unable to work for a range of reasons, from illness to injury to longer term or permanent disabilities. The remaining beneficiaries (7%) include other groups, like early retirees or spouses and/or children of deceased, retired, or disabled workers, who receive survivor benefits.
What does it mean to receive benefits from Social Security? Basically, it means you get a modest payment from a shared pool of money on a regular basis. The mean Social Security retirement payment, for example, is around $2,000 per month ($24,000 annually), while the mean disability payment is around $1,600 per month ($19,200 annually). For context, the federal poverty level in 2026 is an annual income of $15,960 or lower for an individual, meaning that Social Security payments alone can keep someone above the poverty line.
The amount paid per month also varies across different people since it’s calculated through a formula that takes into account your age when you stopped working, how much you earned, and how long you worked, among other factors. In general, the more money you earn during your working years, the more money you receive as benefits from Social Security, subject to some situational differences, like whether you’re still working and under full retirement age while collecting benefits.
Today, almost all older adults receive at least some Social Security benefits, with many lower-income adults relying on Social Security as nearly all of their income in retirement. Other common sources of income people rely on in retirement include 401(k)s, other retirement accounts like IRAs, personal savings and investments, and pensions (guaranteed retirement income from your employer). However, pensions have become far less common since the 1980s. Researchers also estimate that Social Security is particularly important for Black, Latino, and Asian retirees, who are more likely to live below the poverty line than their white counterparts. It’s also particularly valuable for women, who on balance earn less than men, are more likely to take time away from work during their careers, and have smaller pensions or retirement savings due to lower earnings.
Social Security is also a powerful economic force for children and dependents of beneficiaries, both disabled and retired. For example, a 2022 estimate found that Social Security lifted 1.4 million children above the poverty line, either through their parents’ or caretakers’ receiving benefits, or through receiving benefits directly.
How is Social Security funded?
More than 90% of Social Security is funded through payroll taxes. The 6.2% of your earnings that goes to Social Security each paycheck is only part of the picture. Employers pay another 6.2% when they issue your paycheck, making it a total 12.4% payroll tax that funds Social Security. If you are self-employed, you pay the entire 12.4%.
About 5% of Social Security funding comes from taxes on Social Security benefits themselves, as many people who receive payments then pay taxes on those payments, kind of like income taxes but on benefits. The final 5% of Social Security income comes from interest earned from Treasury bonds.
Another thing to know is that when we’re talking about “Social Security” as a whole, we’re really talking about two major funds: the Old-Age and Survivors Insurance Trust Fund (OASI) and the Disability Insurance Trust Fund (DI). While they are often treated as a unit (OASDI), they technically operate as separate funds and face different budgetary constraints and projections, which we’ll see shortly.
What does Social Security’s financial situation look like?
To understand some of the challenges facing Social Security, it’s helpful to consider its financial health over time. The chart below depicts three key variables:
The total asset reserves in the two trust funds (OASI and DI);
The annual total income into Social Security (the payroll taxes, program benefit taxes, and interest described above);
The annual total costs of running Social Security, which include the amount paid out to beneficiaries (99.1% of costs) as well as administrative costs (0.5%) and transfers to the railroad retirement program (0.4%).
While Social Security in its OASI form has been around since 1935, the DI component was officially merged with it in 1957, so the graph below depicts the trends for these three variables since 1957.
Social Security’s costs have been outpacing its income since 2021
Total income, total costs, and total asset reserves at the end of each year for the OAS and DI trust funds since 1957, in billions of US dollars
Two things stand out. First, a big reason you’re hearing about Social Security these days is that in 2021 the total costs of the program exceeded its income for the first time since a deficit stretch in 1975–1981. There were a few other periods (1959, 1961–62, 1965) when costs briefly and slightly exceeded benefits before that, but they were so brief they’re barely visible on the chart. The current stretch and the period during the late Seventies — which was largely the result of a flawed adjustment to the formula in 1972 followed by an unexpectedly low-performing national economy — are the two major sustained periods of Social Security deficit.
Second, also in 2021, you’ll notice the total asset reserves held in the two trusts at the end of each year started decreasing. Again, we saw a small decrease of asset reserves between 1977 and 1981, but overall it was much smaller than the current decrease.
Thus, the concern is that if trends continue this way and we do nothing about it, we will eventually fully deplete all the money in the asset reserves. Some of the biggest debates around Social Security’s financial future, thus, effectively boil down to four questions: how likely is that “if,” what can we do about it, how soon is this “eventually,” and what happens if the funds are fully depleted. We’ll tackle these questions in reverse order.
What happens if the assets run out?
While it sounds scary to think about funds being completely gone, it’s important to remember that even with no assets in the reserves, there will still be income for Social Security through our three avenues of payroll taxes, taxes on benefits, and Treasury bond interest.
If we think of Social Security as a kind of national savings account, depleting the assets would be like running through our savings but still having a job. It’s not ideal to live paycheck to paycheck (though it would be very American of us to end up that way), but the broader Social Security program can technically live on without assets in reserve.
Of course, if we burned through our savings as individuals, the next move would usually be to adjust either our income or our spending so that we can start to build our savings account back up. This is how experts are thinking about Social Security potentially running dry: if all the assets are depleted, the payment amounts distributed to beneficiaries (i.e., our spending) will need to decrease.
Specifically, estimates suggest that if the reserves are depleted, the program will be able to pay out only 83% of its current benefits for a few years, and then if nothing still changes, that number will decrease to 73%. Of course, less money is worse for all recipients, but it’s also anticipated that many older adults — particularly members of marginalized populations and people with disabilities — may fall below the poverty line. So, the payouts won’t hit zero instantly, but the consequences will be real, right away, for many people.
When will assets run out?
Estimates vary, but most anticipate the reserves running dry sometime between 2032 and 2035. On balance, the estimates have crept earlier over the last few years, but the general consensus is that we have less than a decade remaining before the reserves zero out if we don’t do anything differently (there’s that “if” again).
The chart below depicts the most recently published projection from the Social Security Administration itself. It separates out the two funds, which means we can see that the fates of OASI and DI actually look quite different. The way to interpret the lines below is that they represent the ratio of trust reserves as a percentage of the annual cost for each of the two arms of Social Security, old age and survivors, as well as disability insurance. A ratio of one (or even approaching one within five years) means that the benefits can continue to be paid in full.
If trends continue as they are, the OASI will no longer be able to pay benefits in full by 2034
Trust reserves as a percentage of annual cost for OASI and DI funds. A ratio of 1 or more (100%) indicates that if costs exceed income, there is still enough in reserves and tax revenue to pay full benefits
The ratio of the OASI fund is projected to drop below one in 2029 and then reach zero by 2034 in this particular projection. The DI fund, on the other hand, actually is projected to have an increasing ratio of reserves to cost. The explanation for why these two projections are different is a big part of why Social Security is considered to be in trouble in the first place.
How likely are these projections?
Here is where things get stickier. The projections around Social Security’s financial future are built on a series of demographic, economic, and disability assumptions that experts make about America’s future.
The reason it’s difficult to pin down exactly when Social Security’s reserves are going to run out is that the answer depends on what assumptions you include in your model, as well as how variables actually unfold, which is why even under the same assumptions, predictions from this year might be different from last year’s.
To be more concrete: The amount of money in Social Security’s reserves will depend on how much is going into the funds and how much is coming out. How much is going in will depend on how many people are working (demographic and disability assumptions) and how much money they’re making (economic assumptions). How much is going out will depend on how many people are retiring (demographic assumptions) or have to stop working due to illness, injury, or another condition (disability assumptions) and how expensive things are (economic assumptions).
In general, the primary demographic challenge facing the OASI fund in particular is that the age distribution of the US population is shifting toward having more older than younger people. This means the number of people receiving benefits from Social Security will increase, while the number of people paying into it will decrease. Underlying variables around fertility rates, immigration rates, and mortality rates all affect this balance, which is why exact numbers are difficult to pin down. At the same time, the number of people receiving disability benefits is not increasing, or expected to increase, which is the primary reason the DI fund is not expected to become insolvent. While one solution for OASI’s pending insolvency might be to distribute funds from DI or combine the funds, alas, this is prohibited by law. The overall DI fund is also much smaller, and even combining them would only increase OAS and DI solvency by perhaps a year or so.
Can we do anything about this?
There are two answers to what we can do about this. One is shorter term, and the other is longer term. On the shorter term side, there is a lot of room for negotiation and strategizing about how to make Social Security more sustainable. As with any budget challenge, again, the two levers are to increase the amount going in or decrease the amount coming out. On the income side, this could look like increasing the percentage of each paycheck that goes to Social Security from 6.2% to something slightly higher. Another option would be to raise the cap above which our incomes are not subject to Social Security withholding to something higher than $184,500.
On the reducing-spending side, we could of course decrease the percentage of benefits paid out to all recipients, but we could also be more judicious about whose percentages are reduced by how much. For example, while there is a maximum benefit payout (about $5,000 per month), there is currently no cap on the amount of money you can earn while still receiving up to the maximum. How much net worth or income you have is also not currently part of the calculations, meaning even billionaires can receive Social Security benefits today.
This has prompted some policy thinking around whether to cap or reduce benefits for wealthier or higher-income individuals or families. One policy proposal, for example, recommends capping Social Security payments at $100,000 per year for couples.
Another policy lever is increasing the age after which you can receive benefits. But because many people have planned their lives around receiving benefits at a certain time, even pushing back the age limit by one year could have massive repercussions for their financial well-being.
As you can imagine, these are all politically charged topics — who is more or less deserving of benefits can be tricky to figure out, as it’s both a mathematical and ethical question.
On the longer-term side, Social Security’s challenges reflect a lot of much deeper changes afoot in the US (and many parts of the world). Policies that affect complex issues like family planning, immigration, and overall worker productivity all eventually affect Social Security. Heated debates about reproductive rights and childcare affordability are also part of the puzzle, as are the divisive debates around what the “right” immigration rate is for this country. Plus, underlying technological shifts, such as through the advancement of AI, may seriously disrupt the way people earn incomes.
Wherever you personally land on any of these contentious issues, they all affect our immediate lives (our access to care, whether ICE is in our neighborhood and what they can do, whether we get laid off), but they also affect our collective futures — our ability to keep the social safety net that FDR hoped would protect us from exactly these sorts of vicissitudes. As he said in 1935, “we can never insure one hundred percent of the population against one hundred percent of the hazards,” but we can all participate in conversations, communicate with our representatives, and advocate for policy positions we think have the best chance of doing so.
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There is also no mechanism to reduce your social security retirement benefits if you don’t need them. My father worked for a very wealthy woman who tried to refuse her benefits because she didn’t need them and thought giving them to her was wasteful but she discovered there is no legal mechanism to refuse them. She used to donate her check to a variety of charities every month.
From other articles I've read, eliminating the cap on withholding would put a lot more money into the system. As a well to do, but by no means rich, retiree, I'd also support a reduced or eliminated benefit payment to retired individuals with significant other (non-SS) income. $500,00/annually seems like a good arbitrary cutoff.