It's no secret: Social Security has a lot of problems.

Despite being America's most important social program -- more than 3 out of 5 retired workers rely on Social Security to provide at least half of their monthly income -- it looks to be less than two decades away from some serious trouble.

According to the newest Board of Trustees report, released in June, Social Security will begin paying out more in expenditures than it collects in revenue this year. Though we're only talking about a net cash outflow of $1.7 billion, which is minute compared with the $2.89 trillion the program has in asset reserves, this outflow is slated to accelerate very rapidly in 2020 and beyond. Without any additional revenue, or steep cost cuts, Social Security's $2.9 trillion in excess cash will be completely gone by 2034. If this happens, the Trustees have estimated that an across-the-board benefits cut of 21% may be needed to sustain payouts over the long term (i.e., the next 75 years).

A clearly worried senior man pondering his future, with his head resting on his right fist.

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Stop blaming boomers and start blaming increased longevity

How, exactly, did things get so bad for Social Security? Most of the finger-pointing often revolves around baby boomers, who, by no fault of their own, were born in the late 1940s, 1950s, and early 1960s, and are now retiring from the workforce. There simply aren't enough new workers entering the labor force to keep the worker-to-beneficiary ratio from falling. Between now and 2035, it's expected to decline from 2.8-to-1 (100 workers for every 36 beneficiaries) to 2.2-to-1 (100 workers for every 46 beneficiaries), according to the intermediate-cost model in the Trustees report. 

But there's an even bigger demographic swing that's crippling Social Security, and it may not be getting nearly enough credit for doing so -- that demographic change being the steady increase in life expectancy since Social Security first began making retired worker benefit payments in January 1940.

When the program was signed into law in 1935 and first began payouts in 1940, its purpose was simple. It was designed to provide a financial foundation for lower-income retirees who could no longer work and had no other sources of income. Arguably, Social Security has been a resounding success in doing so. An analysis from the Center on Budget and Policy Priorities in 2016 found that 22.1 million people are being kept out of poverty as a result of their monthly Social Security stipend, including 15.1 million retired workers.

Two Social Security cards and two one hundred-dollar bills partially covering a Social Security payout schedule.

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However, the Social Security program, when constructed in 1935, was viewed as a means of providing benefits for a relatively short period of time during retirement. After all, when eligible Americans began receiving a retired worker benefit in 1940, the average life expectancy for men and women was about 61 and 65 years, respectively. 

But this has changed dramatically since 1940. Even with U.S. life expectancy ticking lower in each of the past two years, through 2016, the average American is now living to just under 79 years of age. Essentially, we're talking about at least a 15-year increase in longevity in just shy of eight decades.

While it's great news that we're living longer, it's not such great news that Congress has only overhauled the full retirement age -- the age when you become eligible to receive your full retirement benefit, as determined by your birth year -- on one occasion in the 83 years since the program was signed into law. In 1983, as part of the sweeping amendments passed by the Reagan administration, the full retirement age was set to gradually rise from 65 years (beginning in the year 2000), which is where it stood since the inception of the program, to 67 years by 2022 for those born in 1960 or later. 

To put this another way, the full retirement age between 1940 and 2022 will have risen by just two years, while the average life expectancy has jumped by approximately 15 years between 1940 and 2016. That means Social Security is on the hook to pay beneficiaries for an extended period of time, and it's clearly straining the program.

The words time to retire written and circled on the 11th of the month on a calendar.

Image source: Getty Images.

Raising the full retirement age isn't as easy as you'd think

One pretty obvious solution to help adjust for increased longevity is to, once again, amend the Social Security Act to gradually raise the full retirement age to, say, 68, 69, or 70. Doing so would require eligible seniors to wait longer to receive their full benefit, or to accept a steeper reduction to their monthly payout if claiming early. Either way, it reduces the long-term benefits paid to future beneficiaries, thereby saving the program money over the long run.

But don't think for a moment that adjusting for longevity is an easy fix. There are plenty of obstacles that stand in the way of a full retirement age increase on Capitol Hill.

One of the biggest concerns with raising the full retirement age is what it would do to future generations of retirees. While increasing the full retirement age protects existing retirees (and likely pre-retirees who'll become eligible for benefits in the next few years), it would reduce the lifetime benefits of future beneficiaries, such as those in Generation X and Generation Y (also known as millennials). Passing an amendment that would purposefully reduce lifetime payouts to preserve Social Security probably isn't going to sit well with a lot of voters.

Another issue is that it takes 60 votes in the Senate to pass an amendment to the Social Security Act, and Democrats vehemently oppose the idea of raising the full retirement age. Since neither major political party has had a supermajority (60 seats) in the Senate for four decades, bipartisan cooperation would be required to pass any overhaul to the Social Security program. That simply isn't going to happen based on the current makeup of the Senate.

Understandably, raising the full retirement age is just one of more than a dozen considerations that would help or completely resolve the program's estimated $13.2 trillion cash shortfall between 2034 and 2092. But with the looks of things now, an increase anytime soon appears unlikely.

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