Social Security: On Autopilot and Heading Toward a Cliff

The 2024 report of the trustees of the Social Security trust funds underscores the precarity of the nation’s most effective and most popular federal program. Unless Congress acts, Social Security’s primary trust fund will be depleted in 2033. When that happens, each and every beneficiary will see their benefit cut immediately by 21%. 

Figure 1: Social Security Benefit Cliff Projected in 2033

Policymakers have known for decades that Social Security’s finances are unsustainable but have consistently failed to act, leaving the program an estimated $23 trillion short over the next 75 years—a gap between projected inflows and benefit payments that continues to grow. This inaction threatens the retirement security of millions of Americans who rely on Social Security payments, not to mention millions more planning for retirement. 

Strengthening Social Security’s finances is far from impossible; rather, it’s a policy choice that requires political courage. Congress last reformed the program—addressing its then-looming insolvency in the process—more than 40 years ago; prior to that, lawmakers regularly updated the program’s tax rates, tax base, benefit amounts, and other policy parameters. Instead of leaving on autopilot the most effective anti-poverty program in U.S. history, Congress must return to more active stewardship of Social Security and take steps to address the impact of rapidly changing national demographics. 

A Program Designed for the Past

Social Security benefits are funded by payroll tax revenues in addition to the trust fund reserves that were built up over many years of annual surpluses. (The program is now expected to run deficits permanently.) But the aging U.S. population has placed an unprecedented burden on a workforce that hasn’t kept up in size. In 1960, there were more than five workers paying Social Security taxes per beneficiary, but that ratio has dropped to just three-to-one in 2023 and is projected to decline to less than 2.5-to-one by the middle of the century. One major reason: the beginning of “Peak 65,” the period from 2024 to 2027 in which more than 4.1 million Americans will turn 65 each year, the largest surge of retirements in our nation’s history. 

Figure 2: The Long Decline of the Worker-to-Beneficiary Ratio

This many Americans entering retirement is only part of the problem. Compounding the stress on Social Security’s finances is how long those retirees are living. The life expectancy of a 65-year-old has increased by 50% since 1940 (shortly after Social Security was created), and SSA projects that trend will continue unabated. With record numbers of Americans spending record lengths of time in retirement—and population growth failing to keep up—Social Security can no longer sustain itself using policy parameters set decades in the past. 

Figure 3: Americans Keep Living Longer

For example, when Congress last reformed Social Security in 1983, 90% of all earnings covered by the program were subject to the payroll taxes used to finance benefits. Now, the tax base is only 82% of covered earnings, as Americans earning more than the taxable maximum have seen their incomes increase much faster than those earning less. And as the tax base has shrunk, the tax rate has stayed at 12.4% for more than 40 years. 

 

Figure 4: Social Security’s Tax Base Is Dwindling

Bipartisan Leadership Urgently Needed

The longer Congress waits to act, the harder solving Social Security’s financial challenge becomes, and the more retirees and taxpayers are on the hook for lawmakers’ inaction. Nearly a decade ago, BPC’s Commission on Retirement Security and Personal Savings showed that fixing Social Security can be done. That commission’s balanced package of benefit adjustments and tax increases would have made the program fiscally sustainable and boosted income in retirement for the lowest-earning workers—and it would have made nearly everyone better off in retirement than they would be under current law, maintaining the nearly universal constituency that undergirds Social Security’s public support. 

Addressing the problem now will require bigger sacrifices than it did in the past, but the tradeoffs are less now than they will be at any point in the future. Though today’s Social Security reform proposals are more partisan than ever before, there is some sign of bipartisan discussions on pragmatic and politically realistic solutions. More of this is needed, and policymakers from the rank-and-file to party leadership must come to the table without lines in the sand, but rather a commitment to American workers and retirees. 

 Note: Social Security has two trust funds: the primary Old-Age and Survivors Insurance (OASI) Trust Fund and the much smaller Disability Insurance (DI) Trust Fund. All data in this piece relate to the OASI Trust Fund alone except for the $22 trillion figure, which is the 75-year unfunded obligation for the OASI and DI Trust Funds combined. Combining the two trust funds would delay depletion by one year, but doing so would require an act of Congress.