Social Security is facing growing financial pressure as the program now spends more on benefits than it collects in payroll taxes.
For many years, Social Security brought in more money than it paid out. That extra money was saved in reserves and invested in U.S. Treasury bonds. Those reserves are now being used to help cover the gap between incoming payroll tax revenue and outgoing benefit payments.
Experts warn that if Congress does not act, the reserves could be depleted by 2034.
Why Social Security Is Using Its Reserves
Social Security is mainly funded through payroll taxes paid by workers and employers.
Currently, the payroll tax is 12.4%, split between employees and employers. Workers pay 6.2% of wages, while employers pay another 6.2%.
However, payroll tax revenue no longer fully covers all Social Security benefit payments. Stephen Kates, a financial analyst at Bankrate, said that threshold was crossed around 2008.
Since then, the program has relied partly on past surplus funds to make up the difference.
Payroll Taxes Cover Most, But Not All, Benefits
Kates estimates that payroll taxes now cover roughly 75% to 80% of benefit payments.
The remaining amount is being covered by the program’s reserves. These reserves came from earlier decades when more workers were paying into the system than retirees were drawing benefits.
That cushion has helped prevent immediate benefit cuts. But it is not unlimited.
If the reserves are depleted as projected, Social Security would still collect payroll taxes, but the program would not have enough money to pay full scheduled benefits.
Why The Shortfall Is Happening
Several long-term demographic changes are driving the funding problem.
Americans are living longer, which means retirees collect benefits for more years. At the same time, birth rates have declined, meaning fewer younger workers are entering the workforce compared with past generations.
In 1960, there were about 5.1 workers paying into Social Security for every one person receiving benefits. Today, that ratio has fallen to just under three workers per beneficiary.
That smaller worker-to-beneficiary ratio places more pressure on the system.
Congress Has Been Warned For Years
Experts say the projected depletion of Social Security reserves is not new.
Warnings about the program’s finances have been issued for more than a decade. Kates said Congress has had time to respond but has not yet reached a solution.
As each year passes without reform, the choices become more difficult. Delaying action can make the eventual changes more painful for workers, retirees or both.
What Lawmakers Could Do
There are only a few broad ways to address the problem.
Congress could raise payroll taxes, reduce future benefits, adjust eligibility rules, or change the law to allow Social Security to borrow money. Each option carries political and economic challenges.
Raising taxes could bring in more revenue but may face opposition from workers and businesses. Cutting benefits could hurt retirees who rely heavily on Social Security. Borrowing could add pressure to the already large federal deficit.
Because of these trade-offs, lawmakers have struggled to agree on a path forward.
What It Means For Americans
Social Security is not expected to disappear if reserves run out.
Payroll taxes would still continue, and benefits would still be paid. However, without reform, the program may only be able to pay a reduced share of scheduled benefits once reserves are depleted.
That uncertainty worries retirees, near-retirees and younger workers planning for the future.
Social Security reserves are projected to run out by 2034 because benefit payments now exceed payroll tax revenue. Longer life expectancy, lower birth rates and fewer workers per beneficiary are adding pressure to the system.
Unless Congress acts, Americans could face difficult choices involving higher taxes, lower benefits or major changes to how the program is funded.