Will Social Security Die?

We’ve been told that Social Security will become “insolvent” around 2035. This can lead some people to believe that Social Security benefits will be eliminated entirely, leaving our aging population with nothing to show for a lifetime of work. That’s simply not true.

In Social Security terms, “insolvency” means the point at which the program’s trust funds can no longer cover full benefits. In other words, it will pay out, but just not as much. Technically speaking, the program will only be able to pay out what it collects in taxes each year, and that amount will fall short of what’s promised. Why the shortfall? The trust funds’ reserves, which were built up over many decades, will run dry by around 2035.

The root of the problem is that Social Security has been paying out more than it has been taking in since 2010, as the Baby Boomer generation started retiring. At that time, the reserves were substantial enough to make up the difference between the incoming and outgoing funds, but by around 2035, those reserves will be gone. At that point, unless Congress acts, benefits will be reduced by about 20% to 25%, meaning you would still receive most of your benefits, but not all.

Can this be fixed? Absolutely, but Congress needs to act. One widely discussed solution is to eliminate the cap on earnings subject to Social Security tax. What is the cap, and how does it work? Currently, if you’re fortunate enough to earn more than $168,600 (in 2024 dollars), you will not be taxed for Social Security purposes beyond that amount. Up to that point, you’ll contribute 6.2% of your wages, and your employer will contribute another 6.2%, for a total of 12.4%. (If you’re self-employed, you must pay the entire 12.4%.) That’s why high earners notice an increase in their paycheck once their earnings exceed that cap, as they stop paying the 6.2%.

Why is there a cap at all? Originally, Social Security was designed as a social insurance program where the benefits you receive are roughly proportional to your contributions. For example, a worker who pays more into the system over their career receives higher benefits in retirement (though the formula is weighted to favor lower earners). If the cap were lifted or eliminated, people would continue to pay into the system, no matter how much they make. In that case, Congress would likely adjust benefit formulas to prevent disproportionately higher payouts to ultra-high earners, or the system could still run out of reserves. The rich folks probably wouldn’t get back what they paid in. Would this spark a revolt? Maybe not a literal one. They might exercise their political influence with whatever money they have, including threatening to withhold campaign contributions. This strikes fear in the heart of many politicians, making them lose their spines. The result? Inaction.

The bottom line: No, Social Security won’t vanish in 2035. But without action, retirees could see about a 20% to 25% cut in benefits. Fixing Social Security is possible; it’s a matter of political will. But as long as our campaign finance system allows wealthy people to have outsized influence over politics, the hard choices needed to protect Social Security may continue to be delayed, leaving hardworking Americans uncertain about their future benefits.