Is Social Security Really Running Out of Money?

social security

It’s been more than 80 years since President Franklin D. Roosevelt signed the Social Security Act into law. This program was born in the Great Depression as a way to help older Americans maintain income through retirement.

Since it was instituted on August 14, 1935, Social Security has evolved. Retirees aren’t the only ones who can claim Social Security benefits now; spouses, minor children, disabled workers, and family members of deceased workers can also secure financial support from under the Old-Age, Survivors, and Disability Insurance (OASDI) program, as it’s officially known.

However, we can’t ignore the fact that America has also changed significantly since 1935. Many people now question whether the program can sustain itself in the future. Periodically, the fearful question arise: Is Social Security running out of money?

A Brief Overview of Social Security

Social Security is a federal benefits program that provides financial benefits to more than 60 million Americans every month. Retirees, people with disabilities, and their families are eligible to receive Social Security benefits as long as they paid into the program in the past—typically, via money taken out of their paychecks.

Today, more than 170 million Americans pay into Social Security and 25% of families receive income from the program. It isn’t designed to be the sole source of retirement income for workers, but as a way to replace a percentage of each worker’s pre-retirement earnings. The basis of a nest egg, in other words.

This is why every person’s Social Security benefits align with his or her past earned income and age at retirement.

Why is Social Security Running Out?

Every American worker pays into the Social Security system through taxes, including you! If you’re employed, you pay 6.2% of your wages to Social Security and your employer pays another 6.2%. However, your Social Security tax contributions aren’t held in a special account with your name on it. Rather, the OASDI taxes you pay now are used to fund the people currently receiving Social Security.

By the time you’re ready to retire and collect Social Security benefits, a younger generation’s tax dollars will be paying for your monthly Social Security income.

But wait. There’s a problem with this system that poses a threat to Social Security as we know it. Americans are living longer and having fewer children than in the past. This means more people are hitting retirement age as fewer people enter the working-age population. Experts expect this demographic trend to continue over the next few decades, leading some economists to claim that Social Security funds will be exhausted by 2035.

Why There’s Hope

The current status of Social Security isn’t quite at the doomsday level that some numbers-crunchers suggest it is. Even if we use the worst-case scenario, we still have plenty of time to address Social Security problems before the year 2035 arrives. The program is flexible; it has been adjusted in the past.

Each politician running for office has unique Social Security recommendations, including increasing taxes, cutting benefits, and increasing the age at which people can start collecting benefits. We’re most likely to see a future solution blending all three of these suggestions together.

In fact, the Social Security Administration has already made some changes along those lines now. For example, for generations, the time-honored retirement age has been 65 because that’s when people could start collecting their full Social Security benefits. But that golden year, which SS calls your “full (normal) retirement age,” has been creeping up of late. People born in 1960 or after must wait until they are 67 to collect full benefits. In other words, 67 is the new normal to retire. And given longer life expectancies, many people want to work much longer, anyway.

Just make sure you don’t plan your post-retirement finances around Social Security alone! The program may look different by the time you’re old enough to retire. Build your own retirement savings now by investing wisely.

Learn how to save now and retire early: Financial Independence Retire Early (FIRE) Explained.

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