Social Security Solvency

Social Security is funded on a pay-as-you-go basis, with current workers paying for current retirees. As the population ages, the ratio of workers to retirees has fallen, and the program's trust fund is projected to run short in the 2030s.

When the Social Security Act was passed in 1935, roughly 40 American workers supported each retiree drawing benefits. Today, that ratio is closer to three to one and is still falling. The program collects payroll tax revenue from current workers and pays it out, almost immediately, to current beneficiaries. Surpluses build up the trust fund. Deficits draw it down. The trust fund is now in steady decline. The Social Security Trustees project that the combined Old-Age and Survivors and Disability Insurance trust funds will be exhausted in the mid-2030s. When that happens, by law, the program will only be able to pay what current payroll taxes can support, which would amount to roughly 75 to 80 percent of scheduled benefits. The shortfall is the predictable result of longer lifespans and lower birth rates, and it has been forecast for decades. Reform options fall into a few categories. Raising the payroll tax cap is the leading progressive proposal and would close most of the long-term gap on its own. Raising the retirement age, adjusting benefit formulas, and changing the cost-of-living calculation are common conservative proposals. Some have proposed personal accounts that would let younger workers direct a portion of their payroll taxes into individual investment accounts, though that idea has lost political momentum since the mid-2000s. The 1983 amendments, drafted by a bipartisan commission led by Alan Greenspan, were the last major fix and bought roughly a half-century of solvency. The next fix is overdue.