There has been quite a bit of coverage in the media about Social Security's financial troubles. To be fair, Social Security is heading toward a serious financial crisis in less than two decades if nothing is done to fix the problem.

However, it's important to be aware that this is not the first time Social Security's financial health has been in danger, and history tells us that something will be done before the program runs out of money. Here's a quick background on the last time Social Security was in trouble, and what we did to fix it.

Social Security card in a pile of money.

Image source: Getty Images.

Social Security's financial situation in the 70s and 80s looks familiar

Social Security isn't broke, but it's projected to run out of money in 2034 if something isn't done to fix the problem.

If you're worried about Social Security's reserves being depleted, it's important to mention a few things. First, the incoming payroll tax revenue would be enough to cover more than three-fourths of benefits even if there was no money in Social Security's accounts. Second, this isn't the first time this has happened.

In the 1970s and early 1980s, Social Security was in a similar predicament as it is today. In fact, beginning in 1975, Social Security ran a deficit each year, and it was estimated that the program would not be able to continue to make benefit payments on time beginning in July 1983. At the time, the program was estimated to have a long-term deficit equal to 1.80% of taxable payroll.

How we fixed it: The Social Security Amendments of 1983

In a bipartisan effort that may feel impossible in today's political climate, the Social Security Amendments of 1983 were passed quickly by Congress and were signed into law by President Ronald Reagan on April 20, 1983.

The reform package made a long list of changes to Social Security. You can read a full summary on the Social Security Administration's website. The most significant changes that helped return the Social Security program to long-term solvency were:

  • It made up to one-half of Social Security benefits received by higher-income beneficiaries subject to income tax, which went directly back into the Social Security program.
  • Gradually increased the full Social Security retirement age to 67 for people born in 1960 or later. Benefits are still available as early as age 62, but with a greater reduction.
  • Sped up already-scheduled Social Security payroll tax increases from 6.7% each for employers and employees in 1983 (including Medicare tax) to 7.65% in 1990 and after.
  • Put new Federal employees into the Social Security program.
  • Delayed the 1983 cost-of-living increase from July to December and provided for future adjustments to be made in January of each subsequent year.

Why Social Security is in trouble now

To be clear, Social Security is not broke, nor is it running deficits like it was in the early 1980s. Not yet, at least.

In fact, Social Security has $2.85 trillion in reserve and ran a $35 billion surplus in 2016. What's more, the program is expected to continue to run at a surplus through 2021.

After that time, however, the costs of the Social Security program are expected to exceed its income, and the gap is expected to widen -- fast. In a nutshell, the ongoing retirement of the massive baby boomer generation will result in too many retirees collecting benefits relative to the number of workers who are paying into the system. If nothing is done, the program's reserves are forecast to run out by 2034, at which point the incoming payroll taxes will only be enough to cover 77% of benefits.

How we could fix Social Security this time

While the exact Social Security reform package that will ultimately be implemented (if any) is anyone's guess, a similar combination of modifications could help fix Social Security again.

The latest Social Security trustees' report estimates the 75-year actuarial deficit for the OASDI trust funds to be 2.83% of taxable payroll, about a percentage point worse than the deficit when the 1983 amendments were passed. So, one obvious way to fix the problem would be to increase the Social Security tax rate by 1.415% each for employers and employees.

However, most proposed solutions involve a phasing-in of any tax increase, which makes an immediate tax hike like this unlikely. There are other options that have been discussed as well, such as increasing or eliminating the taxable wage cap, further increasing the full retirement age to 68 or even 70, or cutting benefits for high-income retirees. There are literally dozens of potential combinations of solutions we could use.

The bottom line is that while Social Security isn't in the best financial shape, it's not too late to fix the problem. In 1983, our government proved that a bipartisan solution to Social Security's financial problems was possible. Can we do it again?

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