In January, the Social Security program celebrated its 80th year of divvying out benefit checks to eligible retired workers. This is a storied social program that's responsible for pulling more than 15 million retired workers and over 22 million beneficiaries, in total, out of poverty every year.

Unfortunately, it's also a program that's in big trouble.

In 2019, the Social Security Board of Trustees published its annual report on the financial well-being of Social Security. According to the Trustees, Social Security is facing a whopping $13.9 trillion cash shortfall between 2035 and 2093. This 2035 date is when the program's existing $2.9 trillion in asset reserves (i.e., its net-cash surpluses built up since inception) is forecast to be completely exhausted. Although Social Security is incapable of going bankrupt, it could certainly pass along hefty benefit cuts to retired workers if lawmakers on Capitol Hill fail to act.

A person tightly gripping a Social Security card between their thumb and index finger.

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Boomers retiring and increased longevity are easy to blame for Social Security's problems

How, exactly, does the most successful social program in America's history go from being a resounding success to a massive liability? Most of the blame is typically directed at baby boomers and/or increased longevity.

Following World War II, the United States saw a significant increase in birth rates per woman, leading to the baby boomer generation (1946-1964). When these boomers were in the workforce, they did an incredible job of propping up Social Security by earning wages and salaries that were then subject to the 12.4% payroll tax. But now that boomers are leaving the workforce, there simply aren't enough new workers to replace them. This steady decline in the worker-to-beneficiary ratio over the next 15 years will weigh on Social Security.

Aside from the boomers simply being born, increased longevity also gets its fair share of the blame. Since the first retired worker benefit check went out in 1940, the average life expectancy in the U.S. has risen from 63 years to almost 79 years. Meanwhile, the full retirement age -- i.e., the age at which a retired worker becomes eligible to receive 100% of their monthly benefit, as determined by their birth year-- will only have risen two years between 1940 and 2022 (from age 65 to age 67). This is allowing seniors to lean on the program for decades rather than years, which is straining Social Security.

But there's more to Social Security's shortcomings than just boomers retiring and Americans living longer. Here are three problems that are getting far too little attention.

Parents cradling a newborn baby in their arms.

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1. Birth rates are at an historic low

To begin with, birth rates have hit an all-time low in the United States. Data from the National Center for Health Statistics shows that the fertility rate, a measure of historical (yet hypothetical) births per woman, hit an all-time low of 1.73 in 2018. This represents about half the fertility rate from the height of the baby boomer generation, and it's a low that dates back at least 70 years.

There are a lot of factors that have been identified as leading to this decline in births. In no particular order, they include:

  • Millennials postponing marriage
  • Fewer unplanned pregnancies
  • Better/easier access to contraceptives
  • Still-fresh memories of the Great Recession and/or economic concerns

The point is that the Social Security program is counting on a certain level of births each year (2 births per woman over their lifetime) to offset workers who'll be retiring in the future and become eligible for benefits. If birth rates continue declining or even level off at these depressed levels, it'll put added pressure on the worker-to-beneficiary ratio and significantly widen the program's cash shortfall.

A Social Security card lying atop a work visa.

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2. Net immigration rates have been on the decline for two decades

Another pretty serious problem that's been flying under the radar for some time now is the relatively steady decline in net immigration rates.

According to data published by the St. Louis Federal Reserve, which groups net immigration into five-year intervals, approximately 8.6 million more legal immigrants entered the U.S. between 1993 and 1997 than left the country. By comparison, legal net immigration has fallen to roughly 5 million between 2003 and 2007 and just 4.5 million between 2013 and 2017.

This near-halving in net-immigration rates since the mid-1990s is a big deal. Legal immigrants who enter the U.S. are often young and therefore willing to work for many decades to come. This means they'll wind up contributing to Social Security's payroll tax for decades and help support its worker-to-beneficiary ratio.

Just how sensitive is Social Security to net immigration? According to assumptions published in the latest Trustees report, an average of 1,265,000 net migrants per year would be a contributing factor to the aforementioned $13.9 trillion cash shortfall. But based on the roughly 900,000 net immigrations per year the U.S. averaged between 2013 and 2017, Social Security's cash shortfall could be much wider if this trend continues

A small fanned pile of one hundred dollar bills lying atop a larger fanned pile of U.S. Treasury bonds.

Image source: Getty Images.

3. Historically low yields at a time with peak asset reserves

Lastly, blame the economy, investors, and the coronavirus disease 2019 (COVID-19) for pushing bond yields to an all-time low.

A little-known fact about Social Security is that the program's $2.9 trillion in asset reserves are required by law to be invested in special-issue government bonds and (to a far lesser extent) certificate of indebtedness. Loaning its asset reserves to the federal government is actually a great thing because it allows Social Security to collect interest on what's borrowed. In 2018, for instance, the program collected $83 billion in interest income.

The problem is that bond yields have been plummeting pretty steadily for years. In fact, during the previous week, we witnessed the Federal Reserve issue a surprise 50-basis-point cut to its federal funds target rate and saw all Treasury bonds push to record-low yields. This means the average yield that Social Security will earn on its special-issue bonds is declining at a time when the program's asset reserves will probably never be higher.

With fears of a U.S. recession building as the COVID-19 coronavirus spreads globally and threatens to disrupt supply chains, it's unlikely that yields rebound anytime soon. This means less interest income for America's top social program.