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Social Security Solvency: Is Social Security Going Bankrupt?

social security-solvency-bankruptcy-amac foundation-payroll tax
social security-solvency-bankruptcy-amac foundation-payroll tax

Mention Social Security and you’re likely to encounter the rumor that the program is headed for bankruptcy. Here’s the real story.

Gerry Hafer

Executive Director, AMAC Foundation

The AMAC Foundation’s Social Security Advisory Service fields thousands of questions yearly from the public, and many of these deal with basic misunderstandings about Social Security and how it works. The rumor of Social Security’s impending demise is one of the more frequent of these misunderstandings, often expressed by workers early in their careers who believe that the payroll tax they pay will not produce any return for them when they reach their retirement years. It’s also a disquieting thought among the soon-to-be retired and among many already in retirement.


Put simply, the answer to the question is a solid “no.” By design, Social Security cannot run completely out of money as long as there is a workforce paying that ubiquitous payroll tax. But let’s quickly recognize that there are indeed long-term problems regarding the program’s funding. As of last year, the program is operating in a deficit mode using reserves held in its trust fund to make promised benefit payments. These reserves, a resource that had reached nearly $3 trillion just a few years ago, will enable Social Security to pay promised benefits for about another decade, based on the most recent projections from the program’s Trustees.

Why does the funding shortfall exist?

The root causes for the deficit situation faced by Social Security are complex but fall into a few basic categories. First, as a society, we are living longer and thereby drawing on Social Security for many more months than originally projected. Back when the program was designed, life expectancies in the 60-year range were about average compared to the high 70s and low 80s of today.

Compounding the effect of increased years of benefits is the growing imbalance between workers paying into the system and retirees drawing benefits. In the 1940s, there were more than 40 workers supporting each beneficiary. Today, that ratio is less than 3-to-1. This imbalance is likely to worsen in the future as a result of declining birth rates. Further exacerbating the problem is the massive shift of “baby boomers” from the workforce to the ranks of the retired, with many of them opting to draw benefits at the earliest option and thus for a longer period. 


As a result of these demographic factors, Social Security has begun to consume its cash reserves in order to continue paying promised benefits, something the program has been doing reliably for the past eight decades.

What happens when Social Security reserves are gone?

According to Social Security’s Board of Trustees, depletion of the program’s trust fund reserves would necessitate a 22% reduction in monthly benefit payments. This reduction would be across-the-board, impacting the entire beneficiary population — a demographic cohort expected to number more than 80 million people at that point.

But what’s the likelihood of that happening? Despite many years of congressional inattention to the problem, many who have studied the situation appear optimistic that corrective action will be developed in time to avoid the dire consequences of a full trust fund depletion. It’s not the first time Social Security has faced insolvency; many remember the 1980s and President Reagan’s Executive Order creating the National Commission on Social Security Reform appointed to address a remarkably similar situation. That Commission’s recommendations led to resolution of the financial crisis emerging in the late 1970s and set the stage for Social Security law changes ensuring solvency for the next several decades.


Legislative proposals to address the current funding shortfall have been introduced in Congress repeatedly over the past few years, but so far, no agreeable pathway to a solution has been reached. Unfortunately, the clock is ticking loudly, and the longer it takes to carve out a solution, the more severe the corrective measures are likely to be.

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