By MP Dunleavey

This year marks the 90th anniversary of Social Security’s inception — an extraordinary milestone for a program that an estimated 74 million Americans depend on for retirement, disability and other benefits. But what could have been a celebratory moment has been eclipsed by concerns about the program’s deepening financial crisis, which could reduce benefits for current and future generations if Congress doesn’t act within the next few years. 

That doesn’t mean Social Security is on the brink of collapse, as some headlines have asserted. Rather, the program is in the midst of two urgent and overlapping quandaries — one fiscal, and one existential: How can a Depression-era behemoth evolve to meet the needs of a society that’s radically different from the one it was created to serve?

To grasp what needs fixing, and which of the many proposed solutions could help restore the program to health, it’s essential to understand how the system works — and where the fault lines are.

A Flaw in the System

The program has three dedicated funding sources that flow into its main account, the Old-Age and Survivors Insurance (OASI) Trust Fund: Social Security contributions (which are deducted from workers’ earnings and matched by employers); interest on trust fund reserves, which are invested in Treasury bonds; and the taxes some beneficiaries pay on their Social Security income. The Disability Insurance Trust Fund, or DI, relies on the same structure, but its reserves are projected to last 75 years.

“For years the annual revenue coming into OASI was enough to cover the program’s costs,” says Nancy Altman, president of Social Security Works, an advocacy organization. 

Until it wasn’t.

The system did manage to build up a surplus of some $2.8 trillion, but it also contained an inherent vulnerability: A decrease in workers paying into the system — coupled with a spike in retirees qualifying for benefits — caused outflows to exceed inflows. By 2021, the system tipped into a roughly $59 billion shortfall, forcing the trustees to tap into surplus funds to cover expenses that year, and for every year since.

But the pool of reserve funds is finite. Without any intervention, the shortfall will continue. And with the surplus predicted to run out by 2032, the urgent challenge facing Congress now is how to close the gap sooner rather than later.

How the Funding Gap Grew  

Some blame the surge in boomer retirees for “draining” Social Security. And while that much larger cohort did impact the amount of benefits being paid out, in reality, two profound demographic changes also contributed to the shortfall.

• People are living far longer, which prolongs the need for benefits across the board. By the time the youngest boomers reach the full retirement age of 67 in 2031, the population over age 65 is projected to hit a record 75 million — nearly double the 39 million in 2008, according to the National Academy of Social Insurance.  
• At the same time, birth rates have been declining by about 2% per year since 2014 (aside from a 1% rise in 2021), according to the CDC, destabilizing the beneficiary-to-worker ratio that helped keep the system in balance. In 2014, that ratio was 35 per 100; it’s projected to reach 44 per 100 by 2031, according to the academy.

If Congress doesn’t act by 2032, says Wendell Primus, a visiting fellow at the Center on Health Policy at the Brookings Institution, the trust fund surplus will run out. “And that doesn’t mean the program would go broke, so to speak. It means that benefits would have to be cut by 20% to 24%.”

Estimates vary, but according to a statement from the Social Security trustees in June, if the funds in the main OASI trust account were depleted in eight years or so, only 77% of benefits would be covered. Though many people view Social Security as a mainstay — and millions do live on those benefits alone — the average check as of January 2025 was just $1,976 per month. A benefits cut of 20% or more could be devastating.

New Realities, Necessary Reforms

As economists and lawmakers look to solve the financial shortfall, they must also address realities that Social Security wasn’t built to handle. While numerous proposals across the political spectrum have been floated, and it’s clear more than one solution will be required, here are some ideas that stand out: 

Change the wage cap. Few people realize that income above a certain amount isn’t subject to Social Security at all. In 2025, the cap, technically known as the maximum taxable wage base, is $176,100. The original reason for establishing  this limit — which is updated annually — was to ensure that roughly 90% of collective wages were subject to Social Security withholdings. But growing income disparity, changes to employee benefit structures, as well as other factors, mean that the maximum wage base now covers only about 82% of earnings, says Altman, leaving billions of dollars of Social Security revenue on the table. “Indeed, the Economic Policy Institute calculated that between 1983 and 2023, Social Security’s revenue was $1.4 trillion lower than what it would have been without the growth of income inequality over those decades,” she says. 

Various interventions have been proposed, but raising the taxable maximum to cover 90% of wages could restore some $730 billion between 2025 and 2035, according to Primus, who is also the lead author of “Fixing Social Security: Blueprint for a Bipartisan Solution.” 

• A (gentle) bump to the payroll tax. The 12.4% payroll tax hasn’t been increased in 35 years. Primus estimates that even a 0.2% increase in the payroll tax — that’s 0.1% split between employers and employees — could add roughly $208 billion in revenue over the next 10 years. Other proposals have suggested higher amounts and could generate even more revenue, notes John Shoven, director of the Stanford Institute for Economic Policy Research.
• Update how benefits are determined. Social Security retirement benefits currently factor in a person’s highest-earning 35 working years. Phasing in an increase to 40 working years acknowledges that people are living and working longer, and could add some $19 billion back into the system over 10 years, according to the Brookings Institution. 

Other proposals include raising the retirement age for higher earners (who tend to live longer), rethinking the legal status of some immigrants in order to expand the labor force and bringing state and local workers currently not covered by Social Security into the system — and more.

The obstacle preventing the adoption of any of these, however, lies with Congress itself, Primus notes. “Right now, there’s a big political divide on Capitol Hill,” he says. While the split among lawmakers is often cast as a tug-of-war between raising taxes and cutting benefits, the vast majority of voters take a more unified stance — with 85% of Americans saying that benefits should not be reduced or should be increased, even if that means raising taxes on some or all workers, according to a survey released in January by the National Academy of Social Insurance, along with AARP, the National Institute on Retirement Security and the U.S. Chamber of Commerce.

While there’s no doubt that shoring up this aging system will require some political reckoning, at least the main beneficiaries, present and future, are aligned about the bigger picture: It’s time to get Social Security in shape for the next 90 years.

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