Is Social Security running out of money?

FabrikaSimf /

Established in 1935, the Social Security system for retirement benefits is a critical foundation for the lives of American retirees. For most people over 65, this old-age provision is certainly indispensable.

About half of Americans over the age of 65 live in households that rely on Social Security benefits for half or more of their income, the Social Security Administration says. In a quarter of these households, Social Security checks make up almost all of their income.

Since its inception, Social Security has experienced regular financial crises, and Congress has always resolved them with adjustments. Today, Social Security is approaching another financial cliff for these and other reasons:

The retirement of the large baby boomer generation Longer life expectancies Lower birth rates Increasing income inequality

Here’s a quick look at the problem and whether Social Security can go bust this time.

How Social Security is funded

Is Social Security running out of money?Trekandshoot /

Your Social Security retirement check is funded by payroll taxes on Americans’ earnings during their working lives and taxes on some Social Security retirement income.

Employers and employees will each contribute 6.2% of wages to the fund in 2022 (up to a cap of $147,000). The self-employed pay the full 12.4%. Also, 40% of Social Security recipients pay income tax on their benefits, money that goes back into the Social Security trust fund.

Here’s a breakdown of Social Security revenue streams in 2021:

Payroll taxes: $980.06 billion (90.1%) Interest income: $70.1 billion in interest on invested funds (6.4%) Tax payments income: $37.6 billion (3.4 %)

Benefits paid out now exceed monies received, and the $2.9 trillion Social Security trust fund has begun to shrink to cover benefit checks.

Social security isn’t going to expire anytime soon

Social Security dead and buried in a metaphorical graveLane V. Erickson /

If nothing is done, according to current estimates, the Social Security Trust Fund will be completely depleted by 2034.

That doesn’t mean the death of Social Security, however. Benefits would not stop – the system would continue to function and payroll taxes would continue to fund benefits.

The payments could eventually be reduced

Uncle Sam cuts benefitsJim Barber /

After 2034, annual Social Security income would still be enough to pay about three-quarters of the benefits for the next generation of retirees. Even in 2096, Social Security revenue could cover 74% of its costs.

Nothing must be lost when Congress acts

US CapitolOrhan Cam /

Changes will almost certainly be needed for Social Security to continue in its current form, says Stacy Johnson, founder of Money Talks News,

But the problem is by no means insoluble. The legislature has many possibilities to react to the changing times. Some suggestions from AARP are:

Raising the payroll tax rate Raising the cap on taxable income above the current $147,000 to capture more of the income of wealthy taxpayers Bringing state and local government employees into the tax base broadening system Gradually raising the age at which beneficiaries can claim benefits

History provides numerous examples of action by Congress to maintain the program, including 1950, 1954, 1956, 1961, 1972, and 1977.

One of the most important corrections was initiated by President Ronald Reagan in the early 1980s. When the program faced a funding crisis, he initiated a study called the Greenspan Commission and urged Congress to act.

In 1983, the resulting law strengthened Social Security for a long time, including taxing benefits and raising the retirement age.