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Why Future Retirees Might Get Less Social Security Money

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social security
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Less Secure

Social Security is the most important social safety net in America, providing critical benefits to millions of recipients. Since the program's inception in 1935, scheduled payments have been made on time, giving generations of Americans and their families basic monthly income once they pass their earning years, become disabled, or when they die. That long-standing record of payments made on time and in full might soon be part of history, though. In fact, the Social Security trust fund is now projected to run dry in just 12 short years, according to a new government report. 

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There Simply Won't Be Enough to Go Around

There Simply Won't Be Enough to Go Around

A recently released Social Security Administration report concludes that we have only until 2033 until Social Security's Old Age and Survivors trust fund will run dry. That estimate has been moved earlier than ever largely thanks to the pandemic, which both shrank the labor force and prompted earlier retirements. When the reserves are exhausted, current-level tax revenue will be enough to cover only 76% of the program's costs.

Related: Surprising Facts About Social Security

We're Already Dipping Into the Till

We're Already Dipping Into the Till

In 2020, Social Security entered into a new and fairly precarious era. Payroll taxes have long supported the program, but  according to the Brookings Institution, which studies public policy issues, this is the first time in 30 years that the program is being sustained not only by current payroll taxes, but also by dipping into the reserves that have been accumulated and earmarked for the program over the past three decades.

Related: Where Your Federal Income Tax Money Really Goes



Social Security is incredibly popular across the political spectrum, but raising taxes is equally unpopular. Since Social Security is funded by payroll taxes, the only two options are to reduce benefits or raise taxes, which puts lawmakers in an unenviable Catch-22. The Brookings op-ed summarized the dynamic neatly: "Aversion to tax increases causes skittish lawmakers to delay addressing the unavoidable challenges of Social Security, even though the required adjustments grow more wrenching every year that a feasible solution is delayed."

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The Framework Might Be Critically Flawed
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The Framework Might Be Critically Flawed

There are competing theories on this one, but National Affairs makes a compelling argument against the basic foundation of the current system, which it calls "pay as you go." Virtually all Social Security dollars collected from workers through payroll taxes are used immediately to make payouts to current beneficiaries. Since almost all contributions support current retirees, taxpayer contributions can't be invested and grown to support the taxpayer's own future retirement.

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Social Security is Propped Up By a Doomed IOU System

Social Security Is Propped Up By a Doomed IOU System

Even in times of surplus, about nine out of every 10 dollars goes to pay current retirees, but even that leftover 10% can't be invested. To make sure benefits could be paid out in the case of dark economic times, Congress mandated that surpluses be placed into emergency Social Security trust funds. Instead of investing and growing those trust fund dollars, however, the SSA loaned them to the federal government to plug gaps in other programs. In return came IOUs from the government. In times of deficit, like now, they get called in from the U.S. Treasury to pay retiree benefits. The problem, according to National Affairs, is that the Treasury couldn't possibly come up with the $2.8 trillion needed to cover all those IOUs without borrowing more somewhere else.

woman having breakfast on her 90th birthday
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People Are Living Longer

The fact that life expectancy has risen substantially is good for individuals but bad for Social Security, which must be stretched increasingly thin to provide people income for longer periods. In 1940, five years after Social Security was established with a retirement age of 65, women were expected to live for 65.7 years, and men for an average 61.4 years. Today, men are expected to live for 74.5 years and women should live to be 79.7 years old, according to the SSA. 

Related: This Is the Average Lifespan in Your State


Unsustainable Demographics

Unsustainable Demographics

Not only are people living longer, but the nature of post-World War II demographics makes today's baby-boomer retirees the social-safety-net version of a big person on a seesaw with a little person on the other side. In 1957, the average woman had 3.7 children. The arrival of birth control and rapidly changing social and cultural norms brought that down to 2.8 in 1965. The birth rate needed to sustain a stable population is naturally 2.1 — one kid to replace you, one to replace the person you made them with. By 1976, less than 20 years after the peak of the baby boom, the birth rate had plummeted to an unsustainable 1.7, and today, it's even lower, at 1.6. In other words, there are far too many baby boomers on Social Security competing for far too little in payroll taxes paid by far too few children and grandchildren.

Related: Countries Where the Population is Growing Fastest and Where It's Shrinking

Many Might Be Compelled to File Early

Many People Might File Early

You can start getting Social Security as young as 62, but if you file before your  government-mandated retirement age, your benefits are reduced. For someone who was born in 1958 and is turning 62 now, for example, their full retirement age is 66 and 8 months. By filing for Social Security 56 months early at the age of 62, they'd get a $716 benefit instead of $1,000. That's a loss of 28.3%, which means that, in most cases, they'd be wise to wait. But the current economy might make that impossible for many older Americans who would prefer to hold out for full benefits but simply cannot if they want to put food on the table.

Related: Ways to Get the Most Out of Social Security

elderly work from home

Far More People are Self-Employed

Today, Social Security is still overwhelmingly supported by people who work for an employer. Both parties split the tab for payroll taxes, with the employee paying 6.2% and the employer matching it with another 6.2%. Those who are self-employed, however, have to kick in for both sides and pay a full 12.4% by themselves. Historically, this was an insignificant portion of the workforce, but that's changing rapidly with the rise of the gig economy. According to Forbes, 44 million American workers, or more than 28%, are now at least partially self-employed, and a full 14% are full-time independent contractors. That means the government has to double-dip from far more people to support a system that was designed for a W2-based employer/employee economy.

Related: This is Why So Many People Feel Like They'll Never Get to Retire