Why Are People Worried About the Future of Social Security?

When it comes to retirement, one worry looms large for many Americans: the fear that Social Security won’t be there for them. A staggering 73% of adults under the age of 65 report being either “worried” or “extremely worried” that benefits will not be available when they need them. So, why are people worried about the future of Social Security?

The unease is understandable. For most seniors, Social Security is nothing short of essential. The monthly checks make up at least half of the income for most retirees while keeping millions more out of poverty. With so much riding on this single program, it’s no wonder that people grow anxious when they hear warnings that Social Security is “going bankrupt” or “running out of money.”

But how much truth is there to these alarming claims? Are people right to be so worried about Social Security’s future and their own retirement security? The reality is more complicated than many headlines suggest.

We’ll explain why many Americans are worried about Social Security, explain the funding challenges, debunk misconceptions, and highlight implications for retirement planning. Most importantly, we’ll arm you with the facts about Social Security you need to cut through the confusion and chart a clear path forward.

Social Security’s Vital Role and Financial Challenges

So, why are people worried about Social Security’s future? To understand why so many people worry about Social Security’s future, it’s important to start with the program’s outsized role in retirement security. For more than 4 in 10 seniors, Social Security provides over half of their income. For 1 in 7, it makes up over 90%. Without their benefits, roughly 40% of elderly Americans would live in poverty.

However, while Social Security is often considered a retirement program, that’s only part of the story. It also provides essential support to millions of disabled workers, spouses, and children of deceased workers. In total, almost 68 million Americans receive benefits each month.

How is Social Security Funded?

So, how does Social Security work? The program is primarily funded through payroll taxes:

• Employers and employees each pay 6.2% of wages, up to $160,200 (as of 2023) 
• Self-employed individuals pay the full 12.4% themselves

These taxes go into two trust funds:

• The Old-Age and Survivors Insurance (OASI) Trust Fund, which pays retirement and survivor benefits
• The Disability Insurance (DI) Trust Fund, which pays disability benefits

The money in these trust funds is invested in special U.S. Treasury securities. When the program’s costs exceed its tax income, it redeems these securities to cover the difference.

A common question is: Did the government borrow from Social Security? In reality, while the trust funds are invested in Treasury securities, this is not the same as the government borrowing from the program.

The Long-Term Funding Challenge

For decades, Social Security took in more than it paid out, building up reserves in its trust funds. But the program is now starting to pay out more than it takes in. There are a few key reasons why:

• People are living longer and therefore collecting benefits for more years.
• The massive Baby Boomer generation is retiring and moving from the workforce to the beneficiary rolls.
• Birth rates have fallen, so fewer workers are contributing to the system compared to the growing number of beneficiaries.

According to the latest projections, the OASI trust fund will be depleted by 2034 if no changes are made. The DI fund is in slightly better shape and is expected to last until 2064. If the funds are combined, they would last until 2035.

So, what happens if the trust funds run dry? This is where many misconceptions and worst-case fears start to creep in. However, the key thing to understand is that Social Security won’t suddenly go bankrupt or disappear even in this scenario.  

The program will still receive money from current workers’ payroll taxes, but that revenue alone would only cover about 80% of scheduled benefits. In other words, Social Security is facing a long-term funding gap—not an existential crisis, but a serious challenge that must be addressed to protect the millions who depend on it.

Social Security Myths vs. Reality

As we’ve seen, Social Security is facing some real long-term funding challenges. But not all the fears about the program’s future are grounded in reality. Let’s take a look at two of the most common misconceptions.

Myth #1: Social Security Is Going Bankrupt

One of the most persistent myths about Social Security is that it’s on the brink of bankruptcy. This fear is understandable, given the frequent warnings about the trust funds running dry. But “bankruptcy” isn’t really the right term. 

Here’s the reality:

• As long as workers and employers pay payroll taxes, Social Security will not run out of money
• Even if the trust funds are depleted, the program will still have revenue coming in from current workers’ taxes

So, while trust fund depletion would indeed be a serious issue, it’s not the same as bankruptcy. Social Security would face a shortfall, but it wouldn’t collapse entirely.

Myth #2: Social Security Won’t Exist for Younger Generations

Another common fear is that Social Security will simply disappear for today’s younger workers. Nearly half of Millennials believe they’ll receive no Social Security benefits whatsoever in retirement.

But this worry is also overblown:

• Even if no changes are made to shore up Social Security’s finances, current projections show the program could still pay 80% of promised benefits after the trust fund depletion
• While an across-the-board 20% benefit cut would be painful, it’s a far cry from getting nothing
• Most proposed solutions to close Social Security’s funding gap would phase in benefit changes gradually, giving younger workers time to adjust their plans.

None of this is to say there’s no cause for concern. Social Security’s challenges are serious, and the sooner they’re addressed, the easier it will be to implement gradual corrections that protect current and near-retirees.  

But it’s important to have a clear picture of what Social Security is actually up against—not a hazy dread based on misconceptions.

Reasons for Legitimate Concern

While misconceptions abound, there are valid reasons to be concerned about Social Security’s long-term outlook. The program’s trustees have been warning for years that the current path is unsustainable.

Demographic Challenges Straining the System

Social Security is often described as a “pay-as-you-go” system, with today’s workers funding benefits for today’s retirees. That model worked well when there were far more workers than beneficiaries. In 1960, there were about five workers for every person collecting Social Security. Today, that ratio has fallen to 2.8 to 1. By 2035, it’s projected to drop to 2.3 to 1.

Two main factors drive this demographic shift:

• Longer life expectancies mean seniors are collecting benefits for more years  
• Lower birth rates mean fewer workers are paying into the system

Lack of Confidence in a Political Fix

Perhaps even more concerning than the funding challenge itself is the lack of confidence in political leaders to address it. 87% say Congress should act now rather than wait another ten years to find a solution.

A Looming Shortfall with Painful Implications

Due to these demographic pressures, Social Security faces a long-term mismatch between its income and costs. The program’s trustees project that the combined trust funds will deplete by 2035 if no changes occur.

At that point, Social Security would only have enough ongoing revenue to pay 80% of scheduled benefits. Alternatively, closing the gap only through revenue hikes would require an immediate payroll tax increase of 3.44 percentage points, from 12.4% to 15.84%.

Social Security Worries Amplified by Broader Retirement Insecurity

Concerns about Social Security’s future are also magnified by growing anxiety about retirement security more broadly. 

• 57% of American workers say their retirement savings are not where they need to be, and nearly 4 in 10 say the COVID-19 pandemic has permanently shifted what retirement looks like for them
• Rising healthcare and long-term care costs are a major source of concern, with over 72% of workers saying that one of their top fears in retirement is their healthcare costs becoming unaffordable.

Against this backdrop of mounting retirement challenges, the prospect of even a modest cut to Social Security benefits looms large for many Americans. It’s no wonder that confidence in the program’s future is eroding.

However, while the concerns are real, it’s important to remember that Social Security’s challenges are not insurmountable.

Proposed Solutions to Strengthen Social Security

So, what can be done to shore up Social Security for current and future retirees? Policymakers and experts have put forward a range of proposals, falling into two main categories: benefit changes and revenue increases.

Benefit Changes

On the benefit side, options include:

• Raising the full retirement age (currently 66-67, depending on birth year)
• Means-testing benefits for high-income retirees 
• Adjusting the cost-of-living formula to slow benefit growth

These changes would effectively reduce the total amount of benefits paid out, helping to close the funding gap. But they would also mean benefit cuts or delays for some retirees.

Revenue Increases 

On the revenue side, options include:

• Raising the payroll tax rate from its current 12.4%
• Lifting the cap on earnings subject to the Social Security tax (currently $160,200)
• Expanding the types of income subject to the tax, such as investment earnings or employer-sponsored health insurance

These changes would bring more money into the system, reducing the need for benefit cuts. But they would also mean higher taxes for some workers and employers.

Comprehensive Reform Proposals

Most experts agree that a mix of benefit changes and revenue increases is necessary to close Social Security’s funding gap fully. Some have put forward comprehensive plans that combine various elements from both categories.

One prominent example is the Social Security 2100 Act, introduced by Rep. John Larson (D-CT). The plan would:

• Gradually raise the payroll tax rate to 14.8% over 24 years
• Apply the tax to earnings over $400,000 (in addition to the current cap) 
• Slightly reduce benefits for high earners while increasing them for low earners

According to Social Security’s actuaries, the plan would ensure full benefits through the end of the century while also providing a modest benefit boost for most retirees.

Building Consensus Amid Debate

While there’s growing agreement that action is needed, the path forward remains contentious. Proposals that rely heavily on tax increases face resistance from those worried about the economic impact. At the same time, plans focused on benefit cuts are a hard sell for many advocating on behalf of seniors.

Still, there are signs of potential compromise. A growing number of Republican lawmakers have expressed openness to revenue increases, while some Democrats have signaled a willingness to consider gradual benefit changes as part of a broader package.

What’s clear is that the sooner action is taken, the easier it will be to phase in changes gradually and spread the impact over more generations. The longer policymakers wait, the more abrupt and painful the adjustments will need to be.

Securing Your Retirement Future

So, what does all this mean for your retirement planning? While it’s crucial to advocate for a strong and stable Social Security system, it’s also important to take proactive steps to build your own retirement savings.

Maximize Your Savings Opportunities

If your employer offers a 401(k) or similar retirement plan, aim to contribute at least enough to capture any matching funds. As much as possible, ramp up your contributions over time to take full advantage of the tax-deferred growth potential.

If you don’t have access to a workplace plan, consider opening an Individual Retirement Account (IRA). You can contribute up to $6,500 per year (or $7,500 if you’re 50 or older) and choose between traditional (tax-deferred) and Roth (after-tax) options, depending on your current and expected future tax bracket.

Invest for the Long Term

When it comes to investing your retirement savings, focus on the long term. While it can be tempting to try to time the market’s ups and downs, a steady and disciplined approach is more likely to pay off over time.  

Consider a diversified mix of low-cost index funds with an allocation that balances growth potential and risk tolerance. As you near retirement, gradually shift more of your portfoltowardrds stable income-generating ass,esuch asike bonds.

Plan for Healthcare and Long-Term Care Costs

One of the most significant retirement expenses is often healthcare, including potential long-term care needs. While Medicare covers some costs, it’s essential to plan for out-of-pocket expenses, such as premiums, deductibles, and copays.  

Consider contributing to a Health Savings Account (HSA) if you have a high-deductible health plan. HSA contributions are tax-deductible, grow tax-free, and can be withdrawn tax-free for qualified medical expenses in retirement.

For potential long-term care needs, explore options like traditional long-term care insurance, hybrid life insurance policies with long-term care riders, or self-funding through dedicated savings.

Optimize Your Social Security Claiming Strategy 

Even with the long-term challenges facing Social Security, your claiming decisions can have a big impact on your total lifetime benefits. While you can start collecting as early as 62, waiting until your full retirement age (66-67) or even later (up to 70) can significantly boost your monthly payment.

When deciding when to claim, consider factors such as your health, expected longevity, spousal benefits, and your overall financial situation. Tools like the Social Security Administration’s benefit calculators can help you weigh your options.

Navigating the Future with Knowledge and Planning

The widespread worry about Social Security’s future is understandable—the program is a vital lifeline for millions of American retirees, and the projected funding shortfall is a serious challenge. But it’s important to separate the misconceptions from the realities and to understand the range of potential solutions on the table.

While there’s no crystal ball to predict exactly how policymakers will shore up Social Security in the coming years, one thing is clear: the sooner you start planning and saving for your own retirement, the more secure you’ll be no matter what the future holds.  

You can take control of your retirement destiny by maximizing your savings opportunities, investing wisely, planning for healthcare costs, and optimizing your Social Security claiming strategy. By staying engaged and advocating for a fair, sustainable Social Security system, you can help ensure that this critical program remains strong for generations to come.

The road ahead may sometimes feel uncertain, but with knowledge, planning, and proactive steps, you can navigate the journey to retirement with greater clarity and confidence. The future starts with the actions we take today—so let’s start now.