Social Security is vital to the financial well-being of our nation's retired workers, as well as millions of workers with disabilities and the survivors of deceased workers.

The Center on Budget and Policy Priorities released a report in April 2022 that showed that nearly 22.5 million people are pulled out of poverty each year as a result of Social Security payments. What's more, the poverty rate for aged Americans sits at 9% because of Social Security's existence, as opposed to an estimated 38% without the program. 

Yet as amazing as this program has been for more than eight decades, Social Security is rife with issues.

A visibly concerned senior citizen looking out a window.

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Social Security has a couple of well-known, long-standing issues

The latest annual report from the Social Security Board of Trustees projects that the Old-Age and Survivors Insurance Trust, which is what provides monthly benefits to retired workers and survivors, is on pace to deplete its asset reserves -- the excess revenue built up since inception -- by 2034. Although Social Security and the OASI are in no danger of insolvency or going bankrupt, failing to fix this capital shortfall could result in retired worker and survivor benefits being cut by an estimated 23% in 12 years. 

Some of Social Security's shortcomings are well known. For instance, the ongoing retirement of baby boomers from the workforce is something lawmakers have known for decades would adversely affect the program. As more boomers enter retirement, the worker-to-beneficiary ratio has fallen. In other words, there aren't enough new workers to counter the retirement of boomers.

Another Social Security problem that's well documented is the inability of the cost-of-living adjustment (COLA) to keep up with the true inflation seniors are contending with.

Ideally, Social Security's inflationary tether, the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), should help keep the purchasing power of Social Security dollars steady with the rising price of goods and services. However, Social Security policy analyst Mary Johnson of The Senior Citizens League, a nonpartisan senior advocacy group, notes that the purchasing power of Social Security benefits has plunged 40% since 2000.

As you'll note by the full name of the CPI-W, it's designed to track the spending habits of urban and clerical workers, many of whom are of working age and don't receive a monthly Social Security benefit. That's a problem, because most beneficiaries are senior citizens. As a result, important costs to retirees tend to be underweighted in the COLA calculation, while less-important expenses are given added weighting.

The two huge Social Security problems no one is talking about

But these well-known shortcomings represent only half the story of what's troubling Social Security. There are two other big problems playing a key role in Social Security's projected cash shortfall by 2034 -- and hardly anyone is talking about either issue.

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1. Historically low birth rates

The first problem that's flown under the radar is America's steadily declining birth rate. According to the Centers for Disease Control and Prevention, the U.S. fertility rate -- i.e., an estimate of the average number of babies a woman will have in her lifetime -- needs to be 2.1 to exactly replace a generation. In 2020, the U.S. fertility rate screamed to an all-time low of about 1.6 expected births per woman. Birth rates have been precipitously declining for more than a decade. 

The reason for this decline is complex and the result of a long list of plausible factors. We're witnessing couples waiting longer to get married and have children. There's also been a drop-off in unintended pregnancies, which could be a reflection of Americans having easier access to contraceptives.

Even the U.S. economy could be to blame. The Great Recession (2007-2009), COVID-19 pandemic, and current technical "recession" all weighed on consumers' pocketbooks and made them think twice about the added costs of having children.

Historically low birth rates will add even more pressure to Social Security's already declining worker-to-beneficiary ratio. If there aren't enough future workers to counter those retiring from the labor force, the Social Security cash shortfall could be even larger than the Board of Trustees' current forecast.

2. A sizable drop-off in legal immigration

The other problem for Social Security that isn't being given nearly enough attention is the more than two-decade drop-off in legal immigration into the United States.

Despite what you might have heard or read, immigration is 100% a positive for Social Security. Most legal immigrants coming to the U.S. tend to be younger, meaning they will spend decades in the labor force, generating payroll tax revenue that supports Social Security. In fact, the Social Security Board of Trustees is currently modeling an average of 1,281,000 legal immigrants entering the U.S. annually over the next 75 years. 

Unfortunately, legal immigration into the U.S. has been steadily declining since the 1990s. Whereas approximately 8.86 million total legal immigrants entered the U.S. in the five-year period ending in the first half of 1997, just 4.77 million people legally entered the U.S. in the five-year period ending in the first half of 2017, according to data from the World Bank. One can only assume the immigration picture has been even more challenging during the COVID-19 pandemic.

If the legal immigration drop-off and declining birth rates aren't addressed relatively soon, Social Security could face a steep cash shortfall.